Experts have tipped banks to be the top-performing counters at the Nairobi Securities Exchange as the financial year heads to a close based on their earnings growth and anticipated higher dividend payouts.
They argue that, although the global financial sector has been tough as ruins from Covid-19 and a shaky geopolitical frame struggle to settle, the local banking sector has somehow benefited.
"Let's not pretend that banks are not benefiting from the current winds beating the shilling. A dollar is now retailing at an average of 154 units, almost 10 more than Central Bank's guidance rate,'' Samson Mahihu of Diamond Capital says.
He adds that banking sector stocks are expected to see a lift from recent developments which have included the adoption of risk-based lending and the resumption of charges on bank-to-mobile transactions.
Financial advisor Leah Kiama puts it more clearly. "Take that idle money and buy a bank's share. No bank is reporting a huge loss anytime soon".
Last week analysts at Genghis Research who have Absa, KCB, Equity Group, Co-op Bank and NCBA as their top picks, have a buy recommendation on the latter four stocks and a hold option for Absa.
In a report dubbed Playbook 2023, analysts found that an investor looking to generate income should consider purchasing stocks in Co-operative Bank, Equity, Standard Chartered, Barclays Bank and Stanbic and KCB Bank in that order.
According to the analysis, the cooperative society movement is getting stronger in the country, with top Saccos hitting over Sh500 billion in assets.
"Cooperative Bank is reaping huge from its association with Saccos, with more people trooping to the segment for savings and borrowing. It caters to a huge segment of the economy deemed risky. It is paying off,'' Dan Mande of Value Capital says.
It is no wonder that the lender has overtaken KCB Group to become the second most valuable lender on the NSE after Safaricom.
Co-op Bank’s stock rose by 100 basis points to close the day at Sh11.95, up from 11.85 on Thursday when it overtook KCB for the first time as the latter's share continues to fall.
Co-op Bank's total market capitalization closed the week at Sh70 billion, opening a solid Sh4 billion gap against KCB, the leading bank in the country in terms of total assets.
KCB’s share price fell 4.75 per cent on Friday to close at a new 52-week low of Sh20.9, assigning it a market value of Sh67.1 billion.
Equity Bank Group which reported net profit growth of eight per cent for the first six months of the year is expected to give investors a return of 52 per cent, from the current price of Sh35.70, inclusive of a dividend yield of 6.4 percent.
Equity Group is currently trading at a price to a tangible book value of 1.4 times and a price to earnings of 6.5 times compared to an industry average of 1.2x and 6.3x, respectively.
Over the last seven days, the bank industry has remained flat, although notably, Stanbic Holdings gained 3.6 per cent.
Unfortunately, though, the industry is down 10 per cent over the past 12 months. Earnings are forecast to grow by 18 per cent annually.
Even so, the earnings for companies in the Banks industry have grown 29 per year over the last three years. Revenues for these companies have grown 19 per cent per year.
"This means that more sales are being generated by these companies overall, and subsequently their profits are increasing too,'' the report reads.