Kenya: Banking stocks to rally on improved Q3 financials

As banks in Kenya release their Q3 2021 earnings, analysts are expressing optimism, anticipating positive results that reflect the increase in economic activity and the reduction in non-performing loans. This positive outlook comes after a challenging period during the COVID-19 pandemic, where many financial institutions faced significant hurdles. CNBC Africa recently spoke with Erick Mokaya, the Founder of Mwango Capital, to gain insights into the performance of key banks in the country. The discussion highlighted the strong showing of prominent banks like Bank of Galilee and Equity Bank, with notable growth in operating income and profit. Mokaya emphasized the importance of comparing the current financial standings to pre-pandemic levels, indicating that the banks have made remarkable progress in their recovery efforts. Notably, Bank of Galilee showcased impressive numbers, demonstrating a robust performance post-pandemic period. The bank's operational income surged by around 20-22%, marking a significant improvement from the previous year. Mokaya underscored the vital role played by Equity Bank's branch in the Democratic Republic of Congo (DRC), driving substantial growth in various metrics. The bank reported a remarkable 78% growth in profit before tax, indicating a strong growth trajectory compared to 2019. With a focus on expansion into new markets, Equity Bank's subsidiary in DRC showcased a 51% growth in loans and nearly reached the 4% mark for return on assets, reaffirming its solid performance. Additionally, despite facing challenges in dividend payments in 2019 and 2020, Equity Bank maintained robust capital ratios and provisions, signaling a resilient financial position post-pandemic. The decision to withhold dividends during the turbulent period allowed the bank to navigate the challenges effectively. Looking ahead, Mokaya highlighted the upcoming earnings reports of other major banks in Kenya, stressing the need for clear communication from the banks' investor relations departments regarding result announcements. The discussion also touched on the merger between KCB and National Bank of Kenya, examining its potential impact on the market and the strategic positioning of the banks. While the merger with NBK did not elicit significant market reactions, Mokaya pointed out KCB's acquisition of a bank in Rwanda as a strategic move that could influence the bank's performance in the subsequent quarters. In assessing other financial institutions in the sector, Mokaya shed light on NCBA Group's operational challenges following a previous merger and the potential for growth as they continue to expand regionally. Standard Chartered Bank also emerged as a bank of interest, with analysts keen to observe their financial results and dividend policies, following a conservative approach to provisioning in the previous year. Overall, the Kenyan banking sector appears to be on a path to recovery, with strong Q3 financials reflecting resilience and growth. Investors and stakeholders are encouraged to closely monitor the performance of key players in the market as they navigate the evolving economic landscape.