Kenya Commercial Bank has been ranked as the top most attractive financial institution with a strong franchise and intrinsic value score, a Cytonn Investment report released on Monday has revealed.

The bank franchise, Cytonn said scores broadly with comprehensive measures adding that the business strength of the company goes beyond the investor return potential.

The Cooperative bank and Equity Group took the second and third positions respectively while the National Bank was ranked the lowest on both franchise and intrinsic value score.

Other banks include  Diamond Trust Bank,  Standard Chartered ,  I&M Holdings,  Barclays,  Stanbic Holdings,  NIC Bank ,  and   Housing finance  Group which took position 4,5, 6, 7,8, and 9 respectively

Equity Group dropped by 2 spots to Position 3 from Position 1 in 2016 Banking Sector Report, (BSR). It was weighed down by an expensive valuation based on Price to Tangible Book Valuation and low deposits per branch indicating a lower level of efficiency in utilizing its extensive branch network to mobilize deposits.

Standard Chartered Bank rose 3 positions to Position 5 from Position 8 in 2016 BSR as a result of its franchise value boosted by the bank’s high deposits per branch.

Most banks recorded negative growth with only Standard Chartered Bank and Diamond Trust Bank recording double digit growth at 43.9 percent and 16.6 percent, respectively.

The other banks that recorded positive growth are I&M Holdings and Co-operative Bank growing at 8.4 percent and 8.3 percent, respectively.

The macroeconomic environment in 2016 remained stable as evidenced by low interest rates for the 91-day T-bill rates, which declined to 7.9 percent, compared to its 5-year historical average of 9.9 percent, a stable inflation rate of 6.3 percent within the government target of 2.5 percent-7.5 percent, a stable currency, with the Kenyan shilling shedding only 0.1percent against the dollar, and a stable GDP growth coming in at 5.7 percent as at Q3’2016.

With GDP growth prospects for 2016 at between 5.7 percent- 6.0 percent, and the banking sector contributing 10.1 percent to GDP, the anemic growth exhibited by the sector, highlighted by core EPS growth of 4.4 percent, is unfavorable for the economic growth of the country.

While releasing the 2016 BSR themed “Consolidation and resilience in a challenging operating environment” Cytonn’s Chief Investment Officer Elizabeth Nkukuu, said that they analyzed the results of the listed banks in the past year so as to determine which banks are the most attractive and stable for investment.

“Equatorial Bank, Giro Bank, Oriental Bank, Fidelity Bank and Habib Bank have all been acquired and the common theme is that they are all Tier III banks and it is clear from our analysis are two core trends, first, consolidation is happening and will continue to happen and in the last two years alone we have had 5 bank transactions,” explained Nkukuu.

KCB named top most attractive financial institution according to report by Cytonn Investments

Cytonn’s Chief Investment Officer Elizabeth Nkukuu. KCB named top most attractive financial institution according to report by Cytonn Investments

She said that the operating environment has become tougher and more disciplined. “We expect to see more Tier III banks get acquired even though the operating environment was tough in 2016, but the banking sector remained safe and sound,” she observed adding Sector core earnings for 2016 grew at 4.4%, better than the 2.8% for 2015, and net interest margins also increased to 9.2% in 2016 from 8.7% in 2015”.

She further explained that, part from consolidation, increased regulation and need for an improvement in asset quality the industry will become more stable.

“The sector is shaping up to prudence in operations, while key issues such as increased loan loss provisioning and the regulated loan and deposit pricing framework will lead to a more resilient sector in a challenging operating environment,” added Ms Nkukuu.

Cytonn Investments Manager Maurice Oduor said lending to the private sector was expected to pick up due to the rigidity in loan pricing brought about by the Banking Act (Amendment) 2015.

He said that the Government is ahead of its domestic borrowing for the current fiscal year, having borrowed Shs 240.4 billion against a target of Shs 181.0 billion (assuming a pro-rated borrowing throughout the financial year of Shs 229.6 billion budgeted for the full financial year).

“The government has only borrowed Shs 205.8 billion, of the budgeted foreign borrowing, representing 44.5 percent of its foreign borrowing target of Shs 462.3 billion, and the Kenya Revenue Authority (KRA) has already missed its first half of 2016/17 fiscal year revenue collection target by 3.2 percent, and it is expected to miss its overall revenue collection target of Shs 1.5 trillion for the current fiscal year”, said Oduor.

Cytonn Investments is an independent investment management firm, with based in Nairobi -and D.C. Metro – U.S.primarily focused on offering alternative investment solutions to individual high net-worth investors, global and institutional investors and Kenyans in the diaspora interested in the high-growth East-African region.