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Market Report – 3rd September 2021

Faida Research - September 6, 2021 - 0 comments

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Feature of the week:

NCBA Posts a 76.9% Growth in After Tax Profits for 1H2021

NCBA reported a 76.9% y/y increase in after tax profits for 1H2021 to KES 4.7 billion. The rise in profitability was driven by higher interest income and lower loan loss provisioning.

Total interest income grew by 8.7% y/y to KES 22.5 billion. This was mainly supported by a 13.6% y/y growth interest income from government securities to KES 9.3 billion as the holdings of government securities grew by 12.5% y/y. The yield on government securities remained flat at 10.4%. Interest income from loans and advances rose by 7.7% y/y to KES 13.0 billion on the back of a 90 bps increase in the yield on loans to 10.6% as net loans advanced declined by 3.5% y/y

Total interest expenses declined by 4.4% y/y to KES 9.1 billion driven by a 79.5% y/y drop in other interest expenses. Interest expenses from customer deposits increased by 4.6% y/y to KES 9.1 billion as customer deposits grew by 12.0% y/y to KES 437.3 billion. Cost of customer deposits decreased to 4.1% from 4.4% in 1H2020.

As a result net interest income grew by 19.7% y/y to KES 13.4 billion. The net interest margin dropped to 5.2% from 5.8% in 1H2020 as net interest earning assets rose at a slower rate (+7.3% y/y) than net interest income (+19.7% y/y).

Non-funded income edged up by 6.2% y/y to KES 10.7 billion buoyed by higher fees and commissions on loans and advances and an increase in foreign exchange trading income.

  • Fees and commissions on loans advanced grew by 16.7% y/y to KES 5.5 billion
  • Foreign exchange trading income rose by 13.5% y/y to KES 2.4 billion
  • Other fees and commissions fell by 28.1% y/y to KES 1.8 billion

The contribution of non-funded income to total operating income dipped to 44.4% from 47.3% in 1H2020, owing to the faster growth in operating income (+13.4% y/y to KES 24.1 billion).

Total operating expenses (excluding provisions) rose by 11.1% y/y to KES 10.4 billion. The increase was mainly driven by a 21.1% y/y growth in other expenses to KES 4.9 billion and staff costs which edged up by 10.7% y/y to KES 3.9 billion. The cost-to-income ratio excluding provisions fell to 43.1% (1H2020: 44.0%) due to the faster rise in operating income (+13.4% y/y to KES 24.1 billion).

Loan loss provisions eased by 22.4% y/y to KES 5.9 billion. Gross non-performing loans however increased by 16.5% y/y to KES 45.0 billion. The NPL ratio (net NPL/net loans) declined to 6.0% (1H2020: 7.1%).  Of the restructured loans worth KES 83.86 billion 82.0% are now performing.

The directors approved payment of an interim dividend of KES 0.75 for every ordinary share of KES 5.00 held payable on 12th October 2021, books closure 28th September 2021.


  • In 2020, the group permanently closed some of its branches due to merger-related overlaps. As part of its renewed expansion strategy, they expect to open new branches (15 new branches in 2021) and have rehired some of the staff previously terminated. While we view this as an opportunity to grow its customer base, we expect an impact on its efficiency with a steady rise in the C/I ratio in the short term.
  • The declining trend in the cost of funds over the years is expected to support NIMs going forward.
  • We expect renewed lending in 2H2021 (albeit cautiously), with gradual reallocation of assets from government securities.
  • We are positive with the improvement of the overall asset quality and expect it to be sustained.

The counter is trading at a P/B of 0.61x against a peer comparable P/B of 0.77x with a dividend yield of 6.4% against an industry average of 4.3%.

Fixed Income:

CBK Invites Bids for IFB1/2021/21 Treasury Bond

  • The Central Bank of Kenya (CBK) has invited bids for the IFB1/2021/21 infrastructure bond with the intention of raising KES 75.0 billion for funding of infrastructure projects in the FY 2021/2022 budget estimates.
  • The features of the bond are shown in the table below:
Amount KES 75.0 billion
Tenor 21.0 years
Coupon rate Market determined
Taxation Tax free
Period of sale 20/08/2021 to 07/09/2021
Redemption date 18/08/2042

Source: CBK

  • We recommend bidding as follows:
  1. Aggressive bids: 12.85%-12.99%
  2. Non-aggressive bids: 12.70%- 12.84%

Average- 12.94%


Equities Market Summary:

Nairobi Securities Exchange Performance

 The All Share Index (NASI) and the NSE 20 eased by 4.1% w/w and 0.4% w/w to close the week at 179.47 and 2,025.37 respectively. Market turnover eased by 15.6% to KES 2.0 billion while number of shares traded rose by 10.3% to 78.8 million shares.

Most banking stocks registered price declines this week due to profit taking, with the only gain registered on NCBA (+2.8% w/w to KES 27.20) as the group announced a 76.9% y/y increase in after tax profits for 1H2021 to KES 4.7 billion. Read more on this in today’s report.  Notable price declines included; HF (8.3% w/w to KES 3.66), Equity (8.0% w/w to KES 49.90), Absa (4.1% w/w to KES 10.55), KCB (3.6% w/w to KES 46.80) and Co-op (2.9% w/w to KES 13.40). Safaricom eased by 5.0% w/w to KES 42.15.

Britam edged up by 2.2% w/w to KES 8.30 as the Group rebounded to a KES 376.3 million after tax profit from a loss of KES 1.6 billion in 1H2020.

In the coming week, we expect more profit taking activity on companies whose prices had rallied following the results release.

*We are currently updating our recommendations

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