Rank: Veteran Joined: 9/18/2014 Posts: 1,127
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sparkly wrote:lochaz-index wrote:heri wrote:lochaz-index wrote:Looking at the top three banks' results, Kcb is the outlier. While Equity and Coop have taken a serious beat down, Kcb merely got bruised. They must have pulled some neat business in Q4 to stay the execution. Question would be whether they can keep it up as the competition falls further behind...I have my doubts mainly due to the bulging statutory loan loss reserve.
Q1 2017 will be worse than Q4 2016 earnings wise. Assuming the same trajectory throughout the year, FY2017 should come in at about half FY 2016 earnings!
The top three banks are all risk-on when it comes to Wanjiku lending, the cap law will slow them down the most. The risk averse aka Barclays, Stanchart, Stanbic should fair better in the short term. Equity's liquidity ratios suggests a profound change in strategy to a risk-off model. Whether that is a coping/short term mechanism to navigate the capping or is a permanent change remains to be seen. My thinking is that they are building a buffer for any shocks stemming from their loan book.
When the cap law is lifted, expect a massive NPL washout/credit impairment/charge offs especially for the banks with a large number of Wanjikus in their loan book. Depending on when the law is scrapped, that could make a serious dent on FY2017 or FY2018. So banks are not yet out of the woods not by a long shot.
Under the same macro conditions, if interest rates are allowed to revert to the pre-cap era, some borrowers who were borderline delinquent in the capping regime will definitely default. Since the economy will not be making a quick recovery and refinancing will be problematic as it is now, many borrowers will be unable to sustain repayments hence the anticipated write offs. I am confused here. i thought the cure for the banks is lifting the interest rate caps and we make loads of cash if we buy before the lift? Scrapping the cap law is not a panacea to all the ills afflicting KE. The economy is on a slow grind and with it comes systemic risk which trumps sector specific ones. Banks won't increase lending in an environment of heightened default risk. Put differently, take an example of a borrower who is currently enjoying reduced repayments on his/her loan thanks to the caps @14%. However, since the macros are worsening, his/her savings get chewed due to increase in inflation/rising cost of living. In addition, reduced earnings for businesses mean more layoffs meaning as a whole more and more people are struggling to service their loans. If the law is reversed, average interest rates float to assume 18%, what do you think will happen to some borrowers and by extension the banks' NPLs? KCB mean lending rates to the big corporate borrowers was around 12%-14% even before the rate cap. The FDR rates were also between 7%-10% depending on tenor and quantum. Probably the reason they were not clobbered. Of all the banks that have reported results so far (including BBK and Stanbic), Kcb has taken the smallest hit in Q4 2016. BBK is huge on corporate lending and averse to individual(unless for big firm employees) and SME lending yet they also took a shaving. What propelled Equity, Kcb and Coop to the top of the food chain is the mass market which BBK and Stanchart were unwilling to engage. Therefore, I find it odd that they have stayed afloat as the rest fall behind. I still maintain their Q4 is an outlier hence very deceptive. Secondly, Kcb numbers imply that they have a better loan book - quality wise - than the rest(including BBK and Stanbic) vis a vis what has been a tough 2016 for most individuals and businesses. The ceo said that some two large borrowers (probably requiring provisions or prior provisioned) came good for them in Q4 - yet their loan loss reserves increased - which helped them paper over the deteriorating loan book...not a good/sustainable trend. That said, if Kcb can maintain the same numbers Q1 through to Q4 2017, then it's a wrap for the competitors coz that would amount to a very nifty coup de grace. Either way, we will know soon enough...@Q1 maybe. The main purpose of the stock market is to make fools of as many people as possible.
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