Rank: Chief Joined: 1/3/2007 Posts: 18,347 Location: Nairobi
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MadDoc wrote:VituVingiSana wrote:MadDoc wrote:VituVingiSana wrote:Talking of 2018 - One of the reasons why banks will start taking on less risky loans in 2017. For many banks, including I&M, 2017 will be about trying to regularize and restructure NPLs rather than lending to less-than-AA customers. http://www.businessdaily...0696-h1purwz/index.html Should we expect banking stocks to take a hit again in Q1 2017? Still not really sure as the interest cap had already stimulated banks to give out "safer" loans. However, there'll be an invariable increase in LLPs, negatively impacting the bottomline. With this state of limbo, CFC and DTB seem to the safest bets. CFC due to its high non-interest income, DTB due to the good quality of its loan portfolio. When you ask "a hit" are you referring to price action or profits? Price action - No idea Profits - Yes, I expect 1Q 2017 < 1Q 2016 but the "price" has adjusted downwards for in anticipation of lower FY 2017 profits. Some banks esp the mid-tiers [DTB, NIC, I&M] don't have an incentive (premium) to lend to riskier borrowers so they have 2 options: Find "good" borrowers and/or Gov't Paper. Why lend to @VVS vs GoK/EABL/BAT when @VVS can die, go broke, lose his house/plot/shamba to a land-grabber, lose his job? [All this for CBR+4%] EABL, despite its issues, is a cash cow and has enviable assets. BAT is an uber cash cow. GoK can always print/tax its way out of debt. It's better to end to GoK at 12.5% tax-free IFB than lend to @VVS at 14%. I think the growth in NPLs will moderate in 2017 but the LLPs will be required. NPLs are balance sheet items. LLPs are P&L items. Over time the NPLs convert to LLPs. CFC - They didn't have significant number of "high rate" loans like Equity but South Sudan needs to be written off. DTB - I like them but I think they need to increase their NPLs esp for their clients who borrow to build. NIC - They took very high NPLs in 2015. In 2016, they were trying to manage their NPLs i.e. collections. They may have a write-back. LLPs may be another story as the NPLs move to LLPs. I&M - I think the reported NPLs will increase. The entry of CDC will force them to toe the line re: NPLs. I expect LLPs to increase in 2017. I did not understand what the article meant by the prediction of non-performing loans. Its been the norm to use non-payment over 3 months as the baseline. Are there really other structures in place to predict if a loan will go bad? There may be new/innovative analytical tools which may do that. There's no guarantee that banks can predict what will go wrong and when. The IFRS is trying to push banks to be more prudent while lending. It's about probabilities and analysis of Big Data. I think Equity will do well seeing how they have invested in a massive data center & analytical capabilities to support Equitel's loan platform. Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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