Study shows big banks trailing CFC Stanbic in investor friendly index

From left: Rose Kibe Hetal Nathawani and Cytonn Investments’ Partner and Chief Finance Officer Elizabeth Nkukuu, during the release of Cytonn’s Banking Sector Report in Nairobi yesterday. [Photo:Elvis Ogina/standard]

CFC Stanbic has the best prospects for investors over the next five years, according to a new research that could ruffle the banking industry leaders. The research was done by asset management firm Cytonn.

According to the research, National Bank of Kenya and Housing Finance (HF) have been ranked lower among the listed companies.

Listed commercial banks were rated on 12 different metrics where the aggregate score was computed for the final ranking.

Cytonn Investment Portfolio Manager Elizabeth Nkukuu said the survey was aimed at helping long-term investors identify opportunities in the banking sector.

“This study should act as a guide to an investor with a three to five-year view,” she said during the release of the Banking Sector Study for the quarter ended March.

Poor liquidity

I&M and Standard Chartered came in second and third respectively, followed by Equity and Kenya Commercial. However, at the Nairobi Securities Exchange where the banks are listed, poor liquidity would work against CFC Stanbic whose shares are tightly controlled by a minority.

Availability of the stocks in the open market – a metric that was not considered, could realise bigger returns for the rivals, especially in the short term. The research team compared the quality of loans granted, the efficiency of giving credit from customer deposits collected and return on investments.

All the 12 metrics were, however, assigned the same weight, which could be of underlying bias because some measures could have a bigger implication than others. New developments and innovations in the banking industry would obviously have a bearing moving forward.

KCB, which ranked fifth, for instance, launched its mobile-based lending partnership with Safaricom in March. The bank granted over Sh1 billion in new, and more expensive loans, through M-Pesa in just two months.

M-Shwari, a partnership between Safaricom and Commercial Bank of Africa, helped the bank associated with the family of President Uhuru Kenyatta join the top-tier band with deposit accounts jumping by a third and loan account soaring by 42 per cent in 2014 alone.

It is no wonder then that it came as a shocker that CFC Stanbic, a middle-tier bank with only 41,000 loan accounts by December last year according to the Central Bank of Kenya, emerged top – the researchers acknowledged.

Customer deposits

Among the listed banks, HF was rated lowest but the researchers were quick to discount that finding, citing that the mortgage lender was not a commercial bank in the exact definition. “HF is different because it provides long-term loans, and does not have the benefit of cheap customer deposits as the conventional lenders,” Nkukuu said in her explanation.

High property prices and interest rates have ensured home loans are among the least attractive banking products, further complicating HF’s fortunes.

NBK was found to have been heavily reliant on interest income, suggesting that the management could be lagging behind their peers in the industry in developing new services and revenue streams.

But NBK directors  told The Standard in the past week that the lender had major legacy issues that it was nearly getting rid of.

Heavy interference from top government officials in the past has seen the bank’s lending policy compromised, ending up with a huge non-performing loan portfolio. “More than 76 per cent of our loans were extended as personal loans, which happens to be the riskiest segment,” Chairman Mohamed Hassan said last week.

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