Monday, March 09, 2009

Kenya Listed Banks: Comparison of 2008 Results

  • An almost positive correlation between low cost/income ratio and high EPS.
  • Return on capital is a bit of a misnomer as it sometimes represents unspent capital e.g. Equity and thin capitalisation (StanChart and BBK).
  • Tell me how BBK and Equity have similar proportions of NPL to loans and such a difference in terms of LLPs for 2008. Wonder what Co-op is upto- it actually reduced its loan loss porivision in 2008, yet it has the highest proprtion of bad loans. I am assuming some of this is historic...
  • Some banks lent out a lot in 2008-a proportion of these loans may turn bad if economy doesn't recover in '09.
  • Fwd P/E of 6.3 shows Equity has among the cheapest bank stocks at the NSE today. Will wait for it to drop once spilt is effected. And KCB and DKB are cheaper too.


coldtusker said...

What do u mean thin capitalisation?

NPLs lead to LLPs. So Equity might be in line for more LLPs in 1Q 2009.

Your forward PE for Equity is very aggressive. What is your assumption for profit growth in 2009?

And I think many of the guarantors for loanees at Equity are either tapped out...

MainaT said...

Thin capitalisation-have look at Stanchart's core capital/deposit ratio vs that of Equity. Note that BBK with a similarly low ratio will probably be floating some more bonds this yr.
Equity fwd P/E assumes 50% growth in PAT for 2009. I think it was prudent with its provisioning in 2008. The whole issue of guarantors boils down to this imho. What proportion of its loan book is done this way? The easiest proxy is proportion of its book that is personal loans. On page 46 of its 2007 annual report, these account for 24% (36% if you include micro-credit).

coldtusker said...

Can u email the excel spreadsheet to me?

coldtusker said...

Forward 6.3 PE is a steal but I think there is a huge 'hidden' liability.

Many borrowers' guarantors are of a similar socio-economic class. So when time are tough, they affect all the guarantors. Maybe in similar businesses e.g. Mama Mbogas...

Some guarantors may be borrowers as well. So each has to take care of their loan payments before they can support others.

Other guarantors are MULTIPLE guarantors. You can survive one defaulter. But 2? Or 3?

Corporate business. Many SMEs are guaranteed by the borrowers/owners. Thus if the SME gets into trouble it affects the owner directly.

Add family members as guarantors & you have tapped out all sources.

Thats said... the deposits > loans so... the bank is OK coz it gets its money back no matter what!

MainaT said...

CT-xl should be finding its way to you. Will provide better answers once I see the loans proportions in the annual report.

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