Dec 13, 2020

Following the release of the Q3’2020 results by Kenyan listed banks, the Cytonn Financial Services Research Team undertook an analysis on the financial performance of the listed banks and identified the key factors that shaped the performance of the sector, and our expectations of the banking sector for the rest of the year.

Core Earnings per Share recorded a weighted decline of 32.4% in Q3’2020, compared to a weighted growth of 8.7% recorded in Q3’2019. As reported by most of the banks, the decline in the earnings was mainly attributable to the increased provisioning levels, as they covered for downgraded facilities, with the expectations of an increase in defaults across sectors on the back of the COVID-19 pandemic.

Asset quality for listed banks deteriorated in Q3’2020, with the gross NPL ratio rising by 2.6% points to 12.4% from 9.8% in Q3’2019, and higher than the 5-year average of 8.5%. The banking sector was also keen on restructuring loans in order to offer relief for their customers against the effects of COVID-19. The loan restructuring involved placing moratoriums on both interest and principal payments for three months to one year. As at the end of October 2020, the total amount of loan restructured stood at Kshs 1.4 tn representing 46.5% of the banking sector loan book.

The report is themed “Erosion of the Banking Sector’s Asset Quality amid the COVID-19 Operating Environment” where we assess the key factors that influenced the performance of the banking sector in Q3’2020, the key trends, the challenges banks faced, and areas that will be crucial for growth and stability of the banking sector going forward. As such, we shall address the following:

1. Key Themes That Shaped the Banking Sector Performance in Q3’2020,
2. Summary of The Performance of the Listed Banking Sector in Q3’2020,
3. The Focus Areas of the Banking Sector Players Going Forward, and,
4. Brief Summary and Ranking of the Listed Banks based on the Outcome of Our Analysis.

Section I: Key Themes That Shaped the Banking Sector Performance in Q3’2020

Below, we highlight the key themes that shaped the banking sector in Q3’2020 which include regulation, monetary policy, consolidation, asset quality, and capital conservation:

1. Regulation :
   1. Guidance on Loan Restructuring: On March 27^th 2020, the Central Bank of Kenya provided commercial banks and mortgage finance companies with guidelines on loan reclassification, and provisioning of extended and restructured loans as per the Banking Circular No 3 of 2020. The loan restructuring involved placing moratoriums on both interest and principal payments between three to twelve months, in effect giving reprieve to borrowers who found it difficult to repay their loans due to the impact caused by the pandemic. Following this guidance, the banking sector has seen a total of Kshs 1.1 tn, representing 38.6% of the total Kshs 2.9 tn banking sector loan book, being restructured as at August 2020, according to data from the September 2020 Monetary Policy Committee (MPC) Meeting.

The table below highlights some of the major banks that have disclosed the amount of loans they have restructured so far;

No.	Bank	Amount  Restructured (Kshs bn)	% of restructured loans to total loans	Q3’2020 y/y Change in Loan loss provision
1	Kenya Commercial Bank	105.0	18.2%	242.5%
2	Equity Group Holdings	92.0	20.2%	686.1%
3	Diamond Trust Bank	64.0	31.1%	232.1%
4	NCBA Group	58.0	23.2%	210.6%
5	Absa Bank Kenya	63.0	30.1%	146.7%
6	Co-operative Bank of Kenya	39.2	13..8%	89.4%
7	Standard Chartered Bank of Kenya	22.0	16.7%	274.2%
	Total	443.2	23.3%	268.8%

2. Consolidation: Consolidation activity remained one of the key highlights witnessed in Q3’2020, in line with our expectations, as players in the sector were either acquired or merged, leading to the formation of relatively larger, well capitalized, and possibly more stable entities. The following were the major M&A’s activities witnessed during the third quarter of 2020:
   1. On 25^th August 2020, Co-operative Bank Kenya completed the 90.0% acquisition of Jamii Bora Bank and rebranded it to Kingdom Bank Limited. The transaction that had started in March for a 100.0% purchase of the Bank at Kshs 1.1 bn, was completed in August after receiving all the approvals, with Cooperative Bank varying its initial offer of 100.0% stake to a 90.0% stake. For more information on the transaction, see Cytonn Weekly #35/2020, Cytonn Weekly #32/2020 and Cytonn Weekly #26/2020,
   2. Equity Group Holdings completed the 66.5% stake acquisition of the Banque Commerciale Du Congo (BCDC) at a cost of USD 95.0 mn (Kshs 10.3 bn). Initially, the deal was to cost USD 105.0 mn (Kshs 11.4 bn), however factoring in the adverse effects of the COVID-19 pandemic on the two economies, the two parties agreed to reduce the amount to USD 95.0 mn (Kshs 10.3 bn). For more information on the transaction, see Cytonn Weekly #33/2020, and,
   3. I&M Holdings plc issued a cautionary statement to its shareholders on its intention to acquire 90.0% of the share capital of Orient Bank Limited Uganda (OBL). Subsequently in the fourth quarter, the shareholders have given the approval to proceed with the acquisition. Read more on the same here.

  Other mergers and acquisitions activities announced after Q3’2020 include;

1. On 25^th November 2020, KCB Group disclosed that it had entered into an agreement with Atlas Mara Limited (ATMA) to acquire 62.1% stake in Banque De Populaire du Rwanda (BPR) in Rwanda and 100.0% stake in African Banking Corporation Ltd Tanzania (ABC Tanzania). Key to note, Equity Group had previously entered into a binding agreement in April 2019 with Atlas Mara on the acquisition of banking assets in four countries (Rwanda, Tanzania, Zambia and Mozambique); 62.0% of the share capital of Banque Populaire du Rwanda (BPR); 100.0% of the share capital of Africa Banking Corporation Zambia (ABCZam) Ltd; 100.0% of the share capital of Africa Banking Corporation Tanzania (ABCTz); and, 100.0% of the share capital of Africa Banking Corporation Mozambique Ltd (ABCMoz).   In the 62.1% BPR acquisition, KCB will pay a cash consideration based on the net asset value of the BPR at completion of the transaction using a price to book multiple of 1.1x. Key to note, according to the latest BPR financials, the bank had a book value of Rwf 46.6 bn (Kshs 5.2 bn), and thus at the trading multiple of 1.1x, we estimate KCB will have to part with Kshs 5.7 bn. The Group also separately intends to make an offer to acquire the remaining shares from the respective shareholders. Read more on the same here.

Below is a summary of the deals in the last 5-years that have either happened, been announced or expected to be concluded:

Acquirer	Bank Acquired	Book Value at Acquisition (Kshs. Bns)	Transaction Stake	Transaction Value	P/Bv Multiple	Date
KCB Group	Banque Commerciale Du Congo	5.2	62.1%	5.7	1.1x	Nov-20*
KCB Group	ABC Tanzania	Unknown	100.0%	Undisclosed	0.4x	Nov-20*
Co-operative Bank	Jamii Bora Bank	3.4	90.0%	1	0.3x	Aug-20
I&M Holdings	Orient Bank Ltd	3.5	90.0%	3.6	1.1x	Jul-20*
Commercial International Bank	Mayfair Bank Limited	1	51.0%	Undisclosed	N/D	May-20*
Access Bank PLC (Nigeria)	Transnational Bank PLC.	1.9	100.0%	1.4	0.7x	Feb-20*
Equity Group **	Banque Commerciale Du Congo	8.9	66.5%	10.3	1.2x	Nov-19*
KCB Group	National Bank of Kenya	7	100.0%	6.6	0.9x	Sep-19
CBA Group	NIC Group	33.5	53%:47%	23	0.7x	Sep-19
Oiko Credit	Credit Bank	3	22.8%	1	1.5x	Aug-19
CBA Group**	Jamii Bora Bank	3.4	100.0%	1.4	0.4x	Jan-19
AfricInvest Azure	Prime Bank	21.2	24.2%	5.1	1.0x	Jan-18
KCB Group	Imperial Bank	Unknown	Undisclosed	Undisclosed	N/A	Dec-18
SBM Bank Kenya	Chase Bank Ltd	Unknown	75.0%	Undisclosed	N/A	Aug-18
DTBK	Habib Bank Kenya	2.4	100.0%	1.8	0.8x	Mar-17
SBM Holdings	Fidelity Commercial Bank	1.8	100.0%	2.8	1.6x	Nov-16
M Bank	Oriental Commercial Bank	1.8	51.0%	1.3	1.4x	Jun-16
I&M Holdings	Giro Commercial Bank	3	100.0%	5	1.7x	Jun-16
Mwalimu SACCO	Equatorial Commercial Bank	1.2	75.0%	2.6	2.3x	Mar-15
Centum	K-Rep Bank	2.1	66.0%	2.5	1.8x	Jul-14
GT Bank	Fina Bank Group	3.9	70.0%	8.6	3.2x	Nov-13
Average			74.7%		1.2x
* Announcement Date ** Deals that were dropped

The number of commercial banks in Kenya has now reduced to 38, compared to 43 banks 5-years ago. The ratio of the number of banks per 10 million population in Kenya now stands at 7.1x, which is a reduction from 9.0x 5-years ago, demonstrating continued consolidation of the banking sector. However, despite the ratio improving, Kenya still remains overbanked as the number of banks remains relatively high compared to the population. For more on this see our topical

Additionally, the acquisition valuation for banks has come down significantly, from an average acquisition multiple of 3.2x price to book value in 2013, to 0.7x price to book value in 2020, as highlighted in the chart below;

3. Asset Quality - Asset quality for listed banks deteriorated in Q3’2020 with the Gross NPL ratio rising by 2.6% points to 12.4% from 9.8% in Q3’2019. This was high compared to the 5-year average of 8.5%. The deterioration in asset quality was due to the coronavirus-induced downturn in the economy, which led to an uptick in the non-performing loans. Consequently, the NPL coverage rose to 59.2% in Q3’2020 from 57.8% recorded in Q3’2019, in accordance with IFRS 9, where banks are expected to provide both for the incurred and expected credit losses. We expect higher provisional requirements to subdue profitability during the year across the banking sector on account of the tough business environment. According to the data from the November 2020 MPC Meeting, high levels of NPLs were witnessed in sectors such as Tourism, Real Estate, Hospitality as well as Transport and Communication mainly due to the disruption of business and operations caused by the pandemic. Notably, recoveries and repayments in the trade, manufacturing and construction sectors offset the increase in the NPL levels.

The chart below highlights the asset quality trend:

The table below highlights the asset quality for the listed banking sector:

Bank	Q3’2019 NPL Ratio	Q3’2020 NPL Ratio	Q3’2019 NPL Coverage	Q3’2020 NPL Coverage	% point change in NPL Ratio	% point change in NPL Coverage
HF Group	28.2%	25.4%	44.4%	58.2%	(2.8%)	13.8%
KCB Group	8.3%	15.3%	56.5%	58.5%	7.0%	2.0%
NCBA Group	12.4%	14.1%	60.2%	58.3%	1.7%	(1.0%)
SCBK	14.9%	14.8%	77.0%	78.2%	(0.1%)	1.2%
CO-OP	10.5%	13.2%	55.5%	50.1%	2.7%	(5.4%)
Stanbic Bank	10.9%	12.3%	58.9%	61.8%	1.4%	2.9%
I&M Holdings	12.7%	11.2%	62.5%	66.8%	(1.5%)	4.3%
Equity Group	8.4%	10.8%	45.8%	52.0%	2.4%	6.2%
DTB-K	8.9%	7.8%	48.0%	62.5%	(1.1%)	14.5%
ABSA Bank Kenya	6.8%	7.6%	78.6%	64.9%	0.8%	(13.7%)
Mkt Weighted Average	9.8%**	12.4%*	57.8%**	59.2%*	2.6%	1.4%
*Market cap weighted as at 01/12/2020 **Market cap weighted as at 29/11/2019

4. Capital Preservation: The Central Bank of Kenya on 14^th August 2020, directed that Banks will have to get approval before declaring dividends for the current financial year, in a bid to ensure that the banks have enough capital that will enable them to respond appropriately to the COVID-19 pandemic. The Central Bank gave guidance to lenders asking them to revise their ICAAP (Internal Capital Adequacy Assessment Process) based on the pandemic as highlighted in the Banking Circular No 11 of 2020. Subject to the submission of the revised Internal Capital Adequacy Assessment Process, (ICAAP), CBK will determine if it will endorse the board’s decision to pay out dividends. A similar trend has been mirrored globally by both financial and non-financial businesses frantically seeking ways to save money with several regulators encouraging companies to cease the discretionary payments of dividends to shareholders. For instance, in the United Kingdom (UK), the seven largest banks sought to cancel dividend pay-outs despite having solid capital bases, due to fears of an economic recession. Additionally, the Central Bank of most countries have offered guidelines to the banks on dividend payments with for instance, the Federal Reserve announcing on 25^th June 2020 that it would cap dividend payments and prevent share repurchases up to the end of 2020. Closer home, on 6^th April 2020, the South African Reserve Bank’s Prudential Authority advised banks not to pay out dividends this year and that the bonuses for senior executives should also be put on hold during this period as well. The authority highlighted that this directive would ensure banks conserve their capital and as such, enable the banks to fulfil their fundamental roles.

Following the release of the Q3’2020 results, as expected, most banks did not declare any interim dividends for Q3’2020 in a bid to preserve their capital amid the subdued environment.  Below are some of the banks that declared an interim dividend in Q3’2019:

#	Bank	Dividends per share (Kshs)	Amount (Kshs bn)
1	Standard Chartered Bank	5.00	1.7
2	NIC Bank	0.25	0.2
Total			1.9

 Section II: Summary of the Performance of the Listed Banking Sector in Q3’2020:

The table below highlights the performance of the banking sector, showing the performance using several metrics, and the key take-outs of the performance.

Bank	Core EPS Growth	Interest Income Growth	Interest Expense Growth	Net Interest Income Growth	Net Interest Margin	Non-Funded Income Growth	NFI to Total Operating Income	Growth in Total Fees & Commissions	Deposit Growth	Growth in Government Securities	Loan to Deposit Ratio	Loan Growth	Return on Average Equity
NCBA	(67.3%)	4.8%	4.1%	5.3%	3.2%	11.8%	48.7%	47.7%	8.1%	12.5%	63.0%	0.4%	3.9%
ABSA	(65.4%)	1.4%	0.8%	1.6%	7.1%	4.5%	32.7%	(10.7%)	4.7%	13.1%	84.9%	7.8%	15.2%
KCB	(43.2%)	23.0%	20.8%	23.7%	7.8%	1.5%	30.8%	(14.2%)	31.7%	83.9%	74.7%	18.7%	13.1%
I&M	(30.8%)	3.0%	8.9%	(1.7%)	5.3%	1.1%	38.1%	(5.9%)	7.0%	70.9%	73.4%	6.7%	2.4%
SCBK	(30.4%)	(5.8%)	(17.3%)	(2.4%)	7.0%	(8.8%)	31.1%	(9.7%)	8.0%	7.6%	1.5%	11.2%	12.9%
Stanbic	(30.2%)	(5.4%)	(3.1%)	(7.3%)	5.9%	(18.4%)	44.5%	(33.3%)	18.2%	103.8%	70.3%	7.5%	12.0%
DTBK	(27.8%)	(3.4%)	(8.9%)	0.9%	5.5%	15.3%	26.6%	17.7%	1.8%	5.1%	71.4%	7.1%	9.2%
Equity	(13.9%)	21.7%	21.6%	21.8%	7.6%	10.1%	38.7%	(1.3%)	44.5%	37.2%	65.7%	30.1%	16.9%
Co-op	(10.2%)	7.1%	(3.5%)	11.7%	8.0%	(3.5%)	36.5%	(31.7%)	16.4%	50.5%	75.7%	5.7%	16.4%
HF Group	N/A	(12.2%)	(16.9%)	(1.1%)	4.2%	(62.2%)	20.0%	11.8%	9.9%	65.6%	98.8%	(4.1%)	(7.6%)
Q3'20 Mkt Weighted Average*	(32.4%)	10.8%	8.2%	11.7%	7.0%	2.1%	35.9%	(7.9%)	23.1%	47.4%	65.6%	15.0%	13.0%
Q3'19Mkt Weighted Average**	8.7%	4.5%	4.3%	4.9%	7.7%	15.8%	37.9%	22.6%	11.0%	3.3%	75.7%	11.6%	19.3%
*Market cap weighted as at 01/12/2020 **Market cap weighted as at 29/11/2019

Key takeaways from the table above include:

1. For the third quarter of 2020, core Earnings Per Share (EPS) recorded a weighted (32.4%) decline, compared to a weighted growth of 8.7% in Q3’2019,
2. The sector recorded a weighted average deposit growth of 23.1%, faster than the 11.0% growth recorded in Q3’2019,
3. Interest expense, on the other hand, grew faster by 8.2%, compared to 4.3% in Q3’2019. Cost of funds, however, declined, coming in at a weighted average of 2.9% in Q3’2020, from 3.1% in Q3’2019, owing to the faster growth in average interest-bearing liabilities, an indication that the listed banks were able to mobilize cheaper deposits,
4. Average loan growth came in at 15.0%, faster than the 11.6% recorded in Q3’2019, but slower than the 47.4% growth in government securities, an indication of the banks preference of investing in Government securities as opposed to lending due to the elevated credit risk occasioned by the pandemic,
5. Interest income rose by 10.8%, compared to a growth of 4.5% recorded in Q3’2019. Despite the rise in interest income, the Yield on Interest Earning Assets (YIEA) declined to 9.5% from the 10.3% recorded in Q3’2019, an indication of the increased allocation to lower-yielding government securities by the sector. The decline in the YIEA can also be attributed to the reduced lending rates for customers by the sector, in line with the Central Bank Rate cuts. Consequently, the Net Interest Margin (NIM) now stands at 7.0%, 0.7% points lower than the 7.7% recorded in Q3’2019 for the whole listed banking sector, and,
6. Non-Funded Income grew by 2.1% y/y, slower than 15.8% growth recorded in Q3’2019. The performance in NFI was on the back of declined growth in fees and commission of (7.9%), which was slower than the 22.6% growth recorded in Q3’2019. The poor performance of the growth in fees and commission can be attributed to the waiver on fees on mobile transactions below Kshs 1,000 and the free bank-mobile money transfer. Banks with a large customer base who rely heavily on mobile money transactions are likely to take the biggest hit.

Section III: Outlook of the banking sector:

Based on the current tough operating environment, we believe 2020 performance in the banking sector will be shaped by the following key factors

1. Increased Liquidity due to lower Cash Reserve Ratio (CRR): The Monetary Policy Committee (MPC) during their 29^th April 2020 meeting lowered the Cash Reserve Ratio (CRR), which is a fraction of total customer deposits that the commercial banks have to hold with the Central Bank, by 100 bps to 4.25% from 5.25%. The reduction is projected to have injected approximately Kshs. 35.2 bn in additional liquidity, to commercial banks for onward lending to distressed borrowers. The reduction was a first one since July 2009. The MPC during their November 2020 MPC Meeting highlighted that Kshs 32.6 bn, representing 92.7% of the 35.2 bn had been utilized by the banking sector to offer reprieve to their customers as well as support lending in the sectors that have been hard hit by the pandemic such as Tourism, Manufacturing as well as Real Estate. We expect the low CRR ratio to improve the banking sectors liquidity and as such, banks with have more money to loan to businesses and individuals as well as invest in other businesses. Additionally, given that a low CRR translates to a low amount held in the CBK at no interest, we expect this to lead to a decline in the interest rates charged on loans by the sector,
2. Lower profitability: With the large amount of restructuring and reclassification of loans witnessed in Q3’2020, we expect the bank’s core source of revenue which is interest income, to be negatively affected in the short term. Given the relaxation of the loan interest payments and the borrowers preference to long term tenor extensions on their loan holiday to between 9-12 months, the banks interest income is set to drop. Banks are also not lending aggressively due to higher credit risk. We foresee a slower growth in loans in FY’2020 and thereafter if the pandemic is to persist further with banks turning to less risky investments such as government securities which rose by 47.4% faster than the 15.0% rise in loans in Q3’2020,
3. Lower Net Interest Margins (NIM): The increased investments by banks in government securities as opposed to lending, coupled with the increased liquidity in the money market has seen the yield curve readjust downwards. As such, we foresee the sector’s Yield on Interest Earning Assets (YIEA) continue to decline in tandem with the decline in the yields on government securities. Additionally, we foresee a continued decline in the sector’s NIMs in the FY’2020, most especially for banks reducing their lending rates for customers in line with the CBR cuts,
4. High Loan Provisioning- The risk of loan defaults remains elevated despite an improvement in the operating environment in line with the relaxation of Coronavirus measures. We foresee increased provisioning in the sector as compared to FY’2019, given the lagged recovery process from the pandemic. Additionally, we expect the higher provisioning requirements as per the IFRS guidelines to further subdue the profitability of the banking sector during the year,
5. Cost Rationalization: Given the expected low revenues and increased automation, banks are expected to continue pursuing their cost rationalization strategies. A majority of banks have been riding on the digital revolution wave to improve their operational efficiency. Increased adoption of alternative channels of transactions such as mobile, internet, and agency banking, has led to increased transactions carried out via alternative channels and out of bank branches, which have been reduced to handling high-value transactions and other services such as advisory. Banks reduced front-office operations, thereby cutting the number of staff required and by extension, reducing operating expenses and hence, improving operational efficiency,
6. Lower Non-Funded Income – With the new regulations put in place by the Central bank to cushion citizens against the effects of the COVID-19 pandemic, banks’ non-interest income was depressed during Q3’2020, growing at a weighted average growth of 2.1%, slower than 15.8% growth recorded in Q3’2019. Notably, the CBK announced in June 2020 that the measures put in place to facilitate mobile transactions such as the free bank-mobile money transfer and the waiver on fees on mobile transactions below Kshs 1,000 had been extended to 31^st December 2020. As such, we foresee the sectors NFI growth to be muted in FY’2020 and to be outperformed by the interest income growth in the short term. Key to note, historically, the sectors NFI growth outperformed that of interest income, thus, allowing the banks to remain profitable amid a rigid regulatory environment, and,
7. Expansion and Further Consolidation - With the Microfinance-Bill 2019 of increasing the minimum on core capital requirements still at its pilot stage more mergers and acquisitions would enable the unprofitable and/or smaller banks to manage the requirement and be able to increase profitability through cost efficiency and deposits growth.

 

Section IV: Brief Summary and Ranking of the Listed Banks:

As per our analysis on the banking sector from a franchise value and a future growth opportunity perspective, we carried out a comprehensive ranking of the listed banks. For the franchise value ranking, we included the earnings and growth metrics as well as the operating metrics shown in the table below in order to carry out a comprehensive review of the banks:

Bank	Loans to Deposits Ratio	Cost to Income Ratio	Return on Average Capital Employed	Deposit/Branch (Kshs bns)	Gross NPL Ratio	NPL Coverage	Tangible Common Ratio	Non-Funded Income/Revenue
Coop Bank	75.7%	63.0%	16.4%	2.4	13.2%	50.1%	15.5%	36.5%
KCB Group	74.7%	75.2%	13.1%	2.1	15.3%	58.5%	13.4%	30.8%
DTBK	71.4%	65.2%	9.2%	2.0	7.8%	54.7%	15.8%	26.6%
Equity Bank	65.7%	70.6%	16.9%	2.3	10.8%	52.0%	13.1%	38.7%
I&M Holdings	73.4%	57.9%	14.5%	3.8	11.2%	66.8%	16.2%	38.1%
NCBA Group	63.0%	86.5%	3.9%	5.9	14.1%	58.3%	12.6%	48.7%
Absa Bank	84.9%	79.0%	15.2%	2.9	7.6%	64.9%	11.4%	32.7%
SCBK	54.2%	68.2%	12.9%	6.7	14.8%	78.2%	15.1%	30.7%
Stanbic Bank	70.3%	48.1%	12.0%	8.7	12.3%	61.8%	12.5%	44.5%
HF Group	98.8%	133.2%	(7.6%)	1.8	25.4%	58.2%	16.2%	20.0%
Weighted Average Q3'2020	70.6%	70.1%	13.9%	3.4	12.4%	59.0%	13.7%	35.9%

The overall ranking was based on a weighted average ranking of Franchise value (accounting for 60%) and intrinsic value (accounting for 40%). The Intrinsic Valuation is computed through a combination of valuation techniques, with a weighting of 40.0% on Discounted Cash-flow Methods, 35.0% on Residual Income and 25.0% on Relative Valuation, while the Franchise ranking is based on banks operating metrics, meant to assess efficiency, asset quality, diversification, and profitability, among other metrics. The overall Q3’2020 ranking is as shown in the table below:

Bank	Franchise Value Score	Intrinsic Value Score	Weighted Score	Q3'2020 Rank	H1'2020 Ranking
I&M Holdings	1	2	1.6	1	1
DTBK	4	1	2.2	2	5
Co-operative Bank of Kenya Ltd	2	5	3.8	3	2
Equity Group Holdings Ltd	4	4	4.0	4	4
KCB Group Plc	7	3	4.6	5	3
Stanbic Bank/Holdings	4	6	5.2	6	6
ABSA	3	8	6.0	7	7
NCBA Group Plc	9	7	7.8	8	8
SCBK	8	9	8.6	9	9
HF Group Plc	10	10	10.0	10	10

Major Changes from the Q3’2020 Ranking are:

1. KCB Group recorded a decline in the franchise value ranking, coming in 5th mainly on the back of the deterioration of their asset quality as evidenced by the group's high Non- Performing Loans (NPL) ratio of 15.3% against a weighted average of 12.4%. Additionally, the group recorded a deterioration in the cost to income ratio to 75.2%, from 71.5% in H1’2020,
2. Diamond Trust Bank whose rank improved to Position 2 from Position 5 in H1’2020 mainly due to an improvement in NPL Ratio to 7.8% in Q3’2020 from 8.3% in H1’2020, in turn, improving its franchise value score, and,
3. Co-operative Bank whose rank declined to Position 3 from Position 2 in H1’2020 mainly due to a deterioration in the asset quality as evidenced by the high NPL ratio 13.2% in Q3’2020, from 11.8% in H1’2020.

For more information, see our Cytonn Q3’2020 Listed Banking Sector Review

Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.