KCB, Equity Bank Seen as Biggest Winners If Kenyan Rate Caps Go

NAIROBI (Capital Markets in Africa) – KCB Group Ltd. and Equity Group Holdings Ltd., Kenya’s largest lenders, will be the biggest beneficiaries from the scrapping of laws limiting the amount of interest banks can charge, according to Exotix Capital Ltd. analyst Faith Mwangi.

Treasury Secretary Henry Rotich has started steps to revoke legislation that the International Monetary Fund has said is damaging the economy and banks have blamed for stalling loan growth. The government is racing to meet an IMF deadline to cut its budget deficit and access a $1.5 billion standby financing facility. Rotich still needs to convince legislators who pushed through the rules in August 2016 in a bid to lower borrowing costs.

“A full repeal is the most likely outcome, but members of parliament have sometimes been unpredictable, making it difficult to quantify with precision,” Mwangi said in a note on Wednesday. “That said, as IMF funding hinges on amending the rate cap, we think action of some sort is a case of when and how, rather than if.”

Completely abolishing the regulations could send profit measures back to pre-rate cap levels, she said. KCB’s return on equity could improve to 26.3 percent, while that of Equity Group may rise to 27 percent, Mwangi said. That would compare with an ROE of 19.5 percent for KCB in 2017 and 21.6 percent for Equity, according to information on their websites.

The industry still has to contend with non-performing loans that reached a decade high of 12.4 percent in April, she said, adding that downside risks to the industry mean that pre-rate cap valuations are still not warranted. Loan growth is unlikely to return to the 20-percent levels seen before the caps, while new accounting standards are also forcing banks to be more prudent on provisions, Mwangi said.

Source: Bloomberg Business News