Market Commentary:
- The All Share Index and NSE 20 Share Index eased by 2.1% and 1.7% w-o-w to close the week at 154.84 and 1,887.23 respectively. Market turnover and volume of shares traded increased by 27.1% and 17.0% respectively to KES 2.7 billion and 79.0 million shares respectively. There was increased selling pressure in the week on the back of profit taking activities following recent price rallies on some counters.
- Notably, Safaricom eased by 2.7% w-o-w to close at KES 35.55. The banking sector also witnessed selling activity on KCB (-2.4% to KES 36.00), Co-op (-2.3% to KES 12.60), DTB (-5.2% to KES 73.00) and Stanbic (-3.4% to KES 77.75). Bamburi, however, extended its upward trend, gaining 2.1% (YTD 21.7%) to KES 46.05. We attribute this to positive investor sentiment due to increased construction activity in Kenya and the region (some markets have even recorded cement shortages and spikes in prices). We expect demand on the counter to remain high.
- We expect increased activity on EABL in the coming week ahead of 1H2021 results announcement (29th January 2021).
News Highlights:
Co-operative Bank Obtains KES 8.3 billion loan for SME Lending
- Co-operative bank has obtained a KES 8.3 billion loan for micro, small and medium-sized (SME) lending from the International Finance Corporation – the private arm of the World Bank.
- According to management, the funding would be used to provide support for firms that have been adversely affected by the COVID-19 pandemic.
- Further, the loan will benefit firms carrying out climate friendly projects such as sustainable agricultural practices and renewable energy.
- The loan is to be repaid in 7 years and is part of IFC’s $8.0 billion COVID-19 facility.
- According to the bank, the credit line will boost its balance sheet with the loans to customers financing the long-term debt.
- In 2018, the bank had received a KES 15.2 billion loan from the IFC for 7 years to lend to MSMEs and by 3Q2020, the bank had trained 8,950 MSMEs and on-boarded 110,914 MSMEs.
Commentary:
- We expect the bank to leverage on the banking advisory services project with IFC to boost MSME lending. In light of the COVID-19 pandemic, we expect the bank to cautiously lend to MSMEs with low exposure to high risk sectors. We note that as at 3Q2020, 46.0% of the bank’s loan book was in personal consumer loans – up from 42.0% in 3Q2019 – with low exposure to sectors adversely affected by the pandemic – tourism, restaurants and hotels (1.0%) and manufacturing 2.0%).
- We also expect the bank to benefit from lenient borrowing terms from a lower interest rate and longer maturity. This will further enable the bank manage interest rate risk as they anticipate to extend long-term loans financed using the long term debt (7 years).
- We expect the loan to boost the bank’s capital (tier 2).
Recommendation:
LONG TERM BUY – KENGEN
HOLD – KENYA RE