2021 seems to be a good year for banks listed on the Nairobi Stock Exchange

Apr 22, 2021 | Ecofin Agency

After the bad year 2020 marked by the covid-19 pandemic, 2021 seems to bring fresh air to the Nairobi Securities Exchange. Analysts on the Cytonn Investment, a local investment firm, said the banking sector’s performances are expected to improve in the mid and long terms.

The sector’s revenues, which grew by 16.1% in 2020, are expected to grow further this year, driven by the financing needs of the government, whose widening budget deficit limits its ability to access international capital markets. Also, it is estimated that the deployment of the covid-19 vaccination in the world and Kenya will go with the revival of activities, thus limiting the non-repayment of credit.

The other helpful factor to the increase in banking revenues is the diversification of both activity and organic plans. Last year, the sector witnessed several acquisition operations. This helps broaden the banks’ revenue bases. The Covid-19 pandemic has boosted the number of people using mobile banking services; the restoration of fees on the use of this service is an additional element of optimism.

Finally, the ability of Kenya's listed banks to lend to the economy has become greater since the central bank reduced the level of capital that commercial banks must set aside to cover lending to the economy. It is now 4.25%, down from 5.25%. At the same time, banks' cash flow could increase at any time, depending on the pace of recovery.

The top 10 client countries for goods and services from Kenya include the United States, where the conditions for recovery are being put in place, but also European countries such as the Netherlands, or the United Kingdom, where the outlook is much more positive. It should be remembered that 2020 was a mixed year for banks on the Nairobi Securities Exchange.

Interest income has grown three times as fast. But banks that remain uncertain about the effects of the pandemic have preferred to increase the level of credit risk provisioning. For those listed banks, KSh586.1 billion ($5.43 billion) has been set aside.

Six of the ten listed banks have announced dividends totaling KSh18.6 billion. A decline in outstanding bad and overdue loans seems to have encouraged institutions to reward their shareholders.

Source: Ecofin Agency