Equity bank KE Q3 results look good on the surface but a bit wobbly below it.
1. In relative terms growth in the loan portfolio has been about 24% YoY for four years (2011-2015). If you compute the growth rate for 2016(by extrapolating till end of the year using current year growth rates) it tanks to less than 1%. In absolute terms, the corresponding four year average has been been circa 39b. For 2016 the same comes to little under 2b.
2. Flight to quality after the belly up stunts of three banks has not helped Equity to shore up its deposit base in 2016 as was the case in 2015. Current year deposit growth is also outpaced by all the previous four years (2011-2014) in relative terms and only beats 2011 & 2012 in absolute numbers.
3. Last I checked the cash reserve ratio was at 5.25%. Has this changed? Coz when I compute Equity KE's CRR for Q3, the figure falls way short of the statutory minimum coming in at 4.29%, or am I missing something? Under what circumstances and for how long are banks allowed to hold less than the stipulated percentage?
4. Equity has been bulking up on its liquidity in the last two quarters. Given the economic conditions, liquidity preference is understandable but the rate of bulking up is a tad startling. This is exemplified by the following:
a). Decreasing increase in the loan portfolio as explained above.
b). Shrinking loan to deposit ratios which is evident in all three 2016 quarters.
c). Decreasing CRR from Q1 all through to Q3.
d). Spike in government securities held for sale. Q3 portfolio is over 4 times the respective Q1 figure and about 1.5 times the Q2 stat.
What is prompting this? Why are they prepping themselves in what appears to be a hurry, any blind corners in the horizon other than the obvious ones?
5. Its capital buffer is thinning out partly explaining its reluctance to lend in the current financial year. A capital injection is due, bear run or no bear run.
6. NIM is falling as a thanks to an anemic economy. This is even before the interest caps take full effect. These twin issues will make life hard/harder for banks to navigate.
7. Lower CTI's have been the saving grace for the most part in 2016. Equitel and automation of tasks will continually reduce the CTI (the target was 42%) in the immediate future. This will be achieved at the expense of employee headcount which started last year. A total of 1060 employees have faced the chopping board in two years.
Was there an official explanation on the jump in letters of credit, guarantees and acceptances figure from 18b in Q2 to 29b in Q3?
The main purpose of the stock market is to make fools of as many people as possible.