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Daily Market Report – 20th May 2020


Faida Research - May 21, 2020 - 0 comments

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NCBA Posts KES 1.6 Bn In After Tax Profits For 1Q2020

 NCBA Group realized after tax profits of KES 1.6 bn in 1Q2020.
 The group’s profitability was underpinned by robust operating income which stood at KES 10.9 bn and improved operational efficiencies; the
group’s cost-to-income ratio stood at 41.5% (lower than CBA’s 53.9% and NIC’s 47.6% in 1Q20219).
 According to management, the group’s cost-to-income ratio largely benefitted from synergies unlocked from the merger (branch optimization, integration of support functions as well as IT integration and optimization).
 The group’s customer deposits which grew by 3.2% q/q from KES 378.2 bn in FY2019 to KES 390.5 bn 1Q2020, was mostly channeled towards:
o Lending in the interbank market: cash and balances with central banks and commercial banks (+16.3% q/q to KES 73.0 bn) and
o Government and investment securities (+5.9% q/q to KES
154.7 bn)
 NCBA’s loan book contracted by 1.4% q/q to KES 245.9 bn as the group adopted a cautious lending strategy amidst a slowdown in loan origination due to the COVID-19 pandemic.
 Asset quality deteriorated further in 1Q2020; NPL ratio rose to 14.1% from 12.1% as at the end of FY2019 and this was attributable
predominantly to legacy accounts (prior merger accounts).

Commentary

 Going forward, we expect NCBA group to continue to focus on investing in government & investment securities (lending to the government) as well as cash holdings (lending in the inter-bank market) in order to mitigate against the asset quality risks brought on by the COVID-19 pandemic.
 Consequently, we expect to see low loan book growth in 2H2020.
 Additionally, given the nature of the group’s asset quality (legacy accounts, whose recoveries are quite slow) coupled with the high credit risk environment, we do not expect much improvement in asset quality in the short-term.

 

Recommendations:

Long Term Buy- Equity, Stanbic

Hold- Safaricom

Sell- Stanchart, Bamburi, KQ

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