Now that several banks have announced their H1 07 results with KCB, Equity and NIC meeting expectations and BBK just below, I thought I would do a deeper dig to understand what are their key drivers. These banks (plus DTK which I'll include once it announces), serve very different strata of the economy and the questions are which is getting more bang for its capital, which one has a sustainable strategy.
- Interestingly BBK doesn't (prudently in my opinion) accrue interest from NPLs. This masks your bad debt problem and is in effect a P&L ticking bomb should you be unable to recover the loans. This interest and other unexplained anomalies also serve to distort the net interest margin calculations for both Equity and NIC.
- The F&C ratios look higher for Equity because although in practice this income is based on accounts held, I have used customer deposits (in the absence of customer data for BBK, KCB & NIC). In the current absence of a fees price war, Equity seems to have found a strong and sustainable income stream that is of course not subject to interest cycles.
- Despite having different loan maturity profiles, BBK and Equity have almost similar loan loss provision rates. NIC's loan loss provision rate is worryingly low.
- KCB has deferred tax so does that mean they are still carrying losses from previous years? Equity gets 20% tax rate due to its having listed last year.
- NPLs and insider loans account for 28% of KCB's loan book no surprise if it was lending to the likes of Mugoya.
- NIC's capital is threadbare (hence recently announced recap exercise). BBK is the other extreme and this may explain the loan hawking and branch opening in such unlikely places as River Road.
In other news, Sameer recovered; Standard Group beat expectations with a bumper first half but its P/E ratio looks ridiculous compared to NMG. EA Portland and Bamburi have suggested it might be a good idea to merge so they can be a world beater (or Africa one anyway). So where does that leave Athi River Mining?
4 comments:
To this date, I'm unable to read bank books. I'm unable to get this stuff into my head. That's why I've never bought a bank stock (except for KCB and NBK IPO's)
Ssem, did this help?
Simply, interest spread (NIM in my table) is a bank's bread and butter. That is the interest it charges you as a loan customer less the interest it pays you for depositing money with it.
However, if like Kenyan banks you can get a way with chargng customers for holding a deposit account with you, for withdrawals, for statements, ledger fees etc then you really make money. The F&C on this table.
Then you just have to keep your costs low. This is the cost income ratio which I'll incorporate in another piece.
Thanks for this great post!
Thanks Ryan.
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