KCB Group has been ranked as the most attractive bank in Kenya by the Cytonn 2019 Banking Sector Report.
The report, themed “Increased Consolidation in the Banking Sector” said the lender’s attractiveness is supported by a strong franchise value and intrinsic value score.
The top tier lender took the pole position in the rankings, from a franchise value and a weighted score of both franchise and future growth opportunity perspective having a better capacity to generate profits from its core business.
The franchise score measures the broad and comprehensive business strength of a bank across 13 different metrics, while the intrinsic score measures the investment return potential.
They compare metrics for efficiency, asset quality, diversification, growth, and profitability, among other metrics.
I&M Holdings took the second position but emerged top in franchise ranking due to high-efficiency levels as evidenced by a low cost to income ratio which stood at 42.4 per cent against an industry average of 57 per cent.
“Continued revenue diversification drive by banks through growing the Non-Funded Income (NFI) segment saw the average revenue mix of Funded to NFI for listed banks in FY’19 coming in at 63:37 compared to 67:33 recorded in FY’2018,” said Maryanne Ng’ang’a, Investment Analyst at Cytonn Investments.
Cooperative Bank took third place while Equity Group was fourth with non funded income of 35.4 per cent and 40.6 per cent respectively.
Diamond Trust Bank Kenya took the top position from a future growth opportunity perspective; however, it had a weak franchise score moving it to position 5 on the weighted score.
Recently rebranded Absa bank took seventh place with a potential return of 38.7 per cent while merged NCBA took the eighth position with a potential return of 47.2 per cent.
HF Group came in 10th position on the back of weak franchise rankings scores as well as a non-promising future growth opportunity perspective as a result of a lack of proper cost-efficiency structure.
The franchise score measures the broad and comprehensive business strength of a bank across 13 different metrics, while the intrinsic score measures the investment return potential.
The report noted that the Banking sector witnessed a number of consolidation activities in FY’2019 as players in the sector were either acquired or merged.
“Kenya remains overbanked as the number of banks remains relatively high compared to the population. Increased consolidation will reduce the number of banks in the country which currently stand at 38, thus reducing the commercial banks to population ratio,” stated the report.