FY 2023 Kenyan Banks Results

I&M Group, DTB Group, Equity Group, and NCBA Group report

Apr 02, 2024

👋 Welcome to The Mwango Weekly by Mwango Capital, a newsletter that brings you a summary of key capital markets and business news items from East Africa.

This week, we cover 2023 full-year results from the major listed Kenyan banks, Kenya Airways, Britam, and I-LAM Fahari I-REIT, Kenya’s inflation in March 2024 and Bamburi, Eaagads profit warnings.

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Kenyan Banks FY 2023 Results

Last week, I&M Group, DTB Group, Equity Group, and NCBA Group reported their FY 2023 results, closing the FY 2023 bank earnings season. Standard Chartered Bank Kenya led in payout ratios at 80.1% with DTB Group recording the lowest payout ratio at 24.4%. KCB Group was the only bank that did not pay a dividend.

Loan Book Trends: KCB Group’s loan book was the largest across the major listed lenders, standing at KES 1.1T, representing 31.1% year-on-year growth. Stanbic Holdings recorded the highest growth relative to FY 2022 at 33.5% to KES 356.2B, which was equivalent to 77.6% of the asset base, as compared to 66.7% in FY 2022. The Co-operative Bank of Kenya’s loan book grew the least across the banks at 10.3% to KES 374.2B, which accounted for 55.76% of the loan book [FY 2022: 55.90%].

Government Securities Holdings: KCB Group recorded the largest jump in its stock of government securities, up 34.45% to KES 397.2B, followed by Equity Group, whose stock rose by 27.05% to reach KES 500.5B. NCBA recorded the lowest growth at 4.81% to KES 239.8B, while Absa, StanChart, and Stanbic reduced their holdings by 28.72%, 34.18%, and 45.72% to KES 95.22B, KES 69.6B, and KES 45.3B, respectively.

Except for Equity, whose government securities as a share of the asset base grew from 27.23% in FY 2022 to 27.48% in FY 2023, all other banks recorded a decline in the proportion of government securities to total assets, led by StanChart from 27.72% to 16.22%, followed by Stanbic from 20.9% to 9.87% and Absa from 27.97% to 18.31%.

Interest Income: The growth in interest income from loans and advances was more robust as compared to that from government securities, partly on account of increased lending in the period vis-a-vis investments in government securities, and higher lending rates in the year that contributed to more income from lending facilities. Particularly, Stanbic Holdings recorded the highest growth in interest income from loans and advances at 51.26% to KES 29.4B, followed by KCB Group and Absa Bank Kenya at 44.50% and 44.23% to KES 44.3B and KES 18.1B, respectively. Co-op Bank recorded the lowest growth at 11.01% to KES 44.9B.

While the growth in interest income from government securities was relatively lower as compared to growth in interest income from loans, KCB Group and DTB Group recorded 29.90% and 29.15% growth rates to KES 42.7B and KES 24.1B, respectively. Strikingly, banks with foreign parent ownership, notably Stanbic, Absa, and StanChart, witnessed declines in interest from government securities at 2.41%, 2.57%, and 19.72% to KES 5.1B, KES 9.2B, and KES 8.3B, respectively.

Non-Interest Income: All banks recorded growth in non-interest income, with the exception of NCBA Group recorded growth in non-interest income. DTB Group recorded the highest growth at 34.3% to KES 12.2B, driven by 2.3X growth in other income to KES 1.1B, and modest growth in fees, commissions, and FX Trading Income. NCBA saw its non-interest income decline by 3.9% to KES 9.1B on account of a 33% drop in FX Trading Income. That also marked the largest drop in FX Trading income across the banks and other banks that recorded declines include KCB at 2.1% and Absa at 2.0%. Co-op Bank recorded the highest growth in FX Trading Income at 63.0% to KES 12.3B, which ultimately played a greater role in the Non-Funded Income (NFI) mix, contributing nearly half at 46.3% as compared to 29.2% in FY 2022.

Interest Expenses: The cost of customer deposits and funding in general remained elevated in FY 2023 on account of higher interest rates in the macroeconomic environment. With rising yields in short-term papers, it became more attractive for investors to place cash in those investments - and the general impact of this was an increase in funding costs across the board. Across the banks, KCB Group recorded the highest change in interest expenses as compared to FY 2022 at 95.64% to KES 60.8B, followed by Stanbic Holdings at 71.67% to KES 12.4B, and third was Absa Bank Kenya at 66.55% to KES 14.2B. StanChart Kenya was the only bank that recorded a decline in its interest expenses at 6.86% to reach KES 3B.

Loan Loss Provisions: There was a general trend in banks provisioning more in FY 2023 relative to FY 2022, and all banks recorded growth in provisions except NCBA Group and Co-op Bank. KCB recorded the highest change at 154.68%, StanChart at 154.43%, and Equity at 128.71%. NCBA and Co-op Bank reduced provisions by 29.91% and 30.76% to KES 9.2B and KES 3.4B, respectively. Equity Group closed the year with the largest absolute size of loan loss provisions at KES 35.3B, up a whopping 128.7% to represent 26.99% of operating expenses [FY 2022: 11.80%].

Non-Performing Loans: Equity Group posted the highest change in gross Non-Performing Loans (NPLs) at 81.51% to KES 114.6B. StanChart was the only bank that recorded a decline in gross NPLs, down by 23.72% to reach KES 17.2B. KCB’s stock of gross NPLs crossed the KES 200B mark to reach KES 208.3B - the largest across the industry, representing a growth of 29.2% from FY 2022. While the ratio of gross NPLs to loans might have reduced by 30 basis points (bps) for KCB, this is a result of loan book expansion given that the absolute change from 2022 stands at KES 47.1B. Regarding the share of gross NPLs to the loan book, Stanbic had the lowest share at 7.4% while KCB had the largest share at 19.0%.

Profitability: The two largest banks in Kenya by asset base, notably KCB Group and Equity Group were the only banks that recorded a decline in net profit at 8.3% and 5.1% to KES 37.5B and KES 43.7B, respectively. Outside of these two banks, NCBA recorded the highest growth in net profit, up 55.7% to surpass the KES 20B mark to reach KES 21.5B, followed by Stanbic Holdings at 34.2% to KES 12.2B, and Co-op bank recorded the lowest positive change at 5.2% to KES 23.2B. Worth noting is that DTB Group was the only lender that closed the year with Sub-KES 10B in net income at KES 6.9B, which was 5.4% lower than the KES 7.3B recorded in FY 2019.

Share Price Performance: Equity Group’s share price closed at KES 47.15 as of market close, up 40.12% year-to-date, representing the largest gains across major banks listed at the Nairobi Securities Exchange (NSE) in the timeframe, while NCBA Group closed at KES 43.80, appreciating the least at 12.45%.

Find a consolidated document with banks’ FY 2023 results here, a thread with the analysis here, and links to spaces where we hosted I&M Group CEO and CFO and KCB Group CFO.

Full-Year Results Wrap

KQ Back to Operating Profitability: In FY 23, Kenya’s national carrier Kenya Airways (KQ) gross revenue grew by 53% year-on-year to reach KES 178.5B, while operating costs declined by 37% to reach KES 167.9B, resulting in an operating profit of KES 10.5B, the first recorded in 7 years. Finance costs declined marginally by 2% to reach KES 33.6B, while finance income fell by 15% to KES 165M. Notably, the airline accrued KES 24B in unexpected FX losses partly on account of the depreciation of the shilling in the operating period. The airline narrowed its net loss for the year to KES 22.7B from KES 38.3B in FY 22. The airline, as part of its restructuring efforts, is also seeking to raise USD 1.5B (KES 197B) in fresh capital aimed at extinguishing debt, expanding operations, and reviving the airline.

Britam Net Profit up 2X, Skips Dividend: For the year ended 31st December 2023, Britam’s insurance revenue grew by 41.4% year-on-year to reach KES 36.4B, while insurance expenses surged by 30.6% to KES 26.9B, equivalent to 73.7% of insurance revenue [FY 2022: 79.8%]. The net insurance service result for the year amounted to KES 3.8B, up 61.5%, which when adjusted for net investment income, other operating income and expenses, brings pre-tax profit to KES 4.8B, up 64.9%. The net result for the year amounted to KES 3.3B, up 97.5%, and the Board of Directors did not recommend payment of a dividend, unchanged from FY 22.

I-LAM Fahari I-REIT: In FY 23, revenue edged lower by 6% year-on-year to reach KES 316.6M, and other income was up 68% to KES 52.1M. Operating expenses were down by 7.2% to KES 225.8M, and the firm narrowed its net loss for the year nearly 10X to KES 297.6K from KES 28.4M in FY 2022. Per Share Earnings were KES 0.00 [FY 22: -KES 0.16]. A first and final dividend per share of KES 0.70, or an aggregate of KES 126.7M has been recommended for FY 2023 as compared to KES 0.65 in FY 22, which aggregated to KES 117.6M.

Markets Wrap

NSE: In Week 13 of 2024, KenGen was the top-performing stock, up 10% to close at KES 2.20. Britam was the worst-performing stock, down 11.0% to close at KES 5.00. The NSE 20 gained 3.9% to close at 1,752.4 points, the NSE 25 rose by 4.7% to close at 2,975.4 points, and the NASI index edged higher by 5%, to close at 113.1 points. Equity turnover was up 108.0% to KES 5.3B from KES 2.5B in the prior week while bond turnover closed the week at KES 23.6B compared to the prior week’s KES 26.1B.

In March 2024, KCB Group Plc led the pack with a significant 50.63% increase in its stock price. Other top performers included Safaricom Plc and Kenya Power & Lighting Co Plc, which saw their stock prices rise by 31.48% and 29.17% respectively. Home Afrika Ltd, Standard Group Plc, and Unga Group Ltd experienced decreases in their stock prices by 16.67%, 16.24%, and 13.74% respectively.

In Q1 2024, Liberty Kenya Holdings Ltd was the top performer with a 48.51% increase. Equity Group Holdings Plc and KCB Group Plc also had strong performances, with their stock prices increasing by 40.12% and 37.21% respectively. On the downside, Home Afrika Ltd, Standard Group Plc, and Nairobi Business Ventures Ltd saw their stock prices decrease by 18.92%, 16.02%, and 14.81% respectively.

Treasury Bills: The weighted average interest rate of accepted bids for the 91-day, 182-day, and 364-day were 16.7200%, 16.8877%, and 16.9899% respectively. The total amount on offer was KES 24B with the CBK accepting KES 13.5B of the KES 15.4B bids received, to bring the aggregate performance rate to 65.99%. The 91-day and 364-day instruments recorded 134.52% and 77.54% performance rates, respectively.

Treasury Bonds: In the T-bonds market, the total bids received in the reopened sale of FXD1/2023/005 and FXD1/2024/010 treasury bonds were KES 59.7B out of a target amount of KES 40B, bringing the performance rate to 149.33%.The CBK accepted KES 22.6B in bids bringing the acceptance rate to 56%.

Eurobonds: In the week, yields were mixed across the 7 outstanding papers.

KENINT 2024 was the only paper whose yield rose, up by 5.40 bps to 7.252% while KENINT 2032 fell the most, depreciating by 9.60 basis points to 9.066%. The average week-on-week change stood at -4.20 bps.
All papers had their yields fall on a year-to-date (YTD) basis, with KENINT 2024 falling the most by 527.80 bps while KENINT 2034 fell the least at 21.40 bps.
Prices rose across the board week-on-week, with KENINT 2034 and KENINT 2048 rising the most at 0.6% to 93.937 and 86.187 respectively. YTD, KENINT 2024 rose the most at 4.2% to 95.643, while KENINT 2034 rose the least at 1.8%.

Market Gleanings

📉| March 2024 Inflation at Sub-6.00% | Kenya's inflation rate dropped to 5.7% in March 2024, compared to 6.3% in February 2024. The main drivers behind the higher prices were transportation (up 9.7% year-on-year), housing and utilities (up 8.0%), and food and beverages (up 5.8%). This is the first time that inflation has fallen below 6% since March 2022 & gets inflation closer to the middle of the CBK target range. The CBK’s Monetary Policy Committee is set to sit on 3rd April this week, and it remains to be seen how the inflation drop in February and March map into their interest rate decision.

⚠️| Eaagads, Bamburi Profit Warnings | Eaagads Limited last week issued a profit warning based on the unaudited financial statements of the company for the 11 months ended 29 February 2024. The decrease in profits is attributed to a reduction in the volume of coffee offered to the market. In the current financial year to date, Eaagads sold 276 metric tons of coffee, compared to 348 metric tons sold in the same period in 2023. Bamburi Cement also issued a profit warning largely attributing it to the one-off settlement of outstanding tax liabilities and legal disputes in Hima Cement Limited in Uganda as part of the closure of the sale transaction.

🤝| Coronation Group, Access Holdings, and M-PESA Africa Partner to Explore Remittances | Coronation Group, Access Holdings, Safaricom and M-PESA Africa are partnering to explore remittance solutions between East and West Africa. This collaboration aims to leverage Coronation's West African presence, Access Holdings' Pan-African banking network, and M-PESA's mobile money dominance to provide secure, affordable remittance options. The initial focus will be on Nigeria, Kenya, Ghana, and Tanzania, with the goal of boosting financial inclusion and economic development across the continent.

📃| Kua Ventures and Startup Savanna Partner to Provide Funding to East African SMEs | Kua Ventures, a Nairobi-based impact investor, has partnered with Startup Savanna to support East African SMEs. Kua Ventures' 3C model offers capital, coaching, and community to entrepreneurs. Startup Savanna, funded by the World Bank, connects Kenyan startups to global expertise and resources. This collaboration aims to empower SMEs through funding, mentorship, and networking opportunities, fostering sustainable development and economic growth.

💸| Zambia Debt Restructuring | Last week, Zambia successfully reached an agreement to restructure its USD 3B eurobonds, a significant milestone in its efforts to avoid debt default. The deal includes a haircut for bondholders of over USD 800M and extends the maturity of the debt. This paves the way for Zambia to access critical IMF funds and work towards economic recovery. This deal is a positive sign for other nations seeking similar debt relief agreements.

🏛️| IMF - Egypt Agreement | The International Monetary Fund (IMF) and the Egyptian authorities have reached a staff-level agreement on the economic policies needed to complete the first and second reviews under the Extended Fund Facility (EFF) arrangement. The agreement includes a move to a flexible exchange rate system, tightening of monetary and fiscal policies, and a slowdown in infrastructure spending to reduce inflation, preserve debt sustainability, and foster an environment that enables private sector activity. Amid significant macroeconomic challenges, the authorities have requested an augmentation of the original arrangement from USD 3B to about USD 8B.

The Mwango Weekly