Select Kenyan and Nigerian Banks plus 2 more: Pricing, Lending & Disclosure

Dear Africa Interested Individuals:

                                                        I reviewed seven select banks in the two foremost frontier markets in Africa: Kenya and Nigeria.  Both are the heartbeats of economic activity in their respective regions.  I had a tripartite evaluative approach.  The banks reviewed are:

1. . SCB Kenya  
2. Equity Group Holdings Kenya
3. Kenya Commercial Bank
4. Zenith Bank Nigeria
5. UBA Bank Nigeria
6. First Bank Holdings Nigeria
7. GT Bank Nigeria
8. National Bank of Malawi 
9. Bank of Kigali, Rwanda

In terms of disclosure, I wanted to know which of these banks broke down their loans into a graduated maturity system including tenors in excess of five years which I consider long-term.  Only four of the nine banks disclosed this information:  SCB Kenya, Kenya Commercial Bank, Bank of Kigali and National Bank of Malawi.    

In terms of lending, I assessed the amount of net loan interest income relative to net loans these banks generated during FY 2014 in comparison to the Central Bank policy rate in the countries of the selected banks during 2014.

Kenya had a policy rate of 8.5% during 2014 (now 11.5%)

1. SCB Kenya: 9.14%    
2. Equity Bank: 12.3%
3. KCB Kenya: 9.02%    

All three selected Kenyan banks were able to receive net interest income on their loans in excess of what they pay to borrow from the Central Bank of Kenya. Equity Bank earned significantly more than the Kenya Bank Reference Rate (KBRR) of 9.1%.  KCB Kenya was just at par while SCB Kenya was just below.  

Nigeria had a policy rate of 12% during 2014 (now 13%)

1. Zenith Bank: 7.20%
2. GT Bank: 7.74%
3. UBA Bank: 3.72%
4. First Bank: 6.78%

 None of the four selected Nigerian banks were able to receive net interest income on their loans in excess of what they pay to borrow from the Central Bank of Nigeria.  Do you notice how far the Nigerian Banks are from the country's policy lending rate?  Interestingly enough, their current prices reflect how they rank above.  Nigerian Banks are the furthest away (downside) from their country's lending rate between Kenyan Banks, the Rwandan Bank and the Malawian Bank selected.  The Nigerian Banks also turned out to be the cheapest from an absolute perspective.     

Malawi has a policy rate of 20% during H1 2014 and 22.5% during H2 2014 (now 25%)

National Bank of Malawi (I like this bank) achieved 17.06% as net loan interest relative to net loans.  This is 4.19% below the average policy rate during 2014 of 21.25%.  This is 19.7% below Malawi's average policy rate during 2014.  The bank is the only bank among the four that disclosed their detailed loan tenors to opt against lending for tenors in excess of five years.  This is smart idea in my opinion given the country's high inflation rate and high lending rates.  The bank has a non-performing loans to assets ratio of 0.8% which is impressive given the high lending and inflation rates existing in the country.  

Rwanda has a repo rate of  6.5% which is their policy reference rate.  The Bank of Kigali achieved 11.22% as net loan interest relative to net loans.  This is the biggest multiple of policy rate among all 11 banks assessed. 

In terms of price, as at August 3rd, 2015, the price of the eleven banks selected are as follows:

1. SCB Kenya:  $2.60
2. Equity Group: $0.37
3. KCB Kenya: $0.48
4. Zenith Bank: $0.08
5. First Bank: $0.03
6. GT Bank: $0.12
7. UBA Bank: $0.02
8. Bank of Kigali: $0.39
9. National Bank of Malawi: $0.49

I utilized current exchange rates from the same source to ensure alignment of dollar conversions.  

The five banks that did not disclose their loan tenors with detailed breakdowns have the five cheapest (absolute) stock prices on this list as at August 3rd, 2015. I only found this out after I was done.  I have said it before that better disclosure will lead to a boost to pricing independent of financial performance.  The Kenyan market is down 9% for 2015 and the Nigerian market is down 13% approximately; despite this, the cheapest Kenyan bank on this list is 3X more expensive than the most expensive Nigerian bank.  Rwanda and Malawi also topped Nigeria with their flagship banks.  Pricing has gone beyond income statement bragging rights.  The more you show me, the more you endear yourself to me.  The banks that have ears, I hope you are listening.      

                             Tell others to tell others about this blog; a new dawn is here.  

For formal consulting only, kindly reach me at: dialecticafricaanalyst@gmail.com