Barclays Bank KENYA: I see a plan, process and performance; Alpha is here...
Dear Africa interested professionals,
Allow me to take you on a quick and concise trip to East Africa and the banking industry.
Barclays Kenya offers a full spectrum of solutions to its customers through its four business units: Retail, Corporate, Treasury & Card Services.
The key strategic drivers of the company's current performance and into the future are:
1. Expanded existing business through renewed SME focus including a new hire to spearhead the bank's renewed focus and optimism about the SME space in Kenya.
The bank has also increased fixed income trading with 18% of its total assets being committed to fixed income trading with none held to maturity as at September 2015 (all available for sale.) Bond yields are averaging 16% in Kenya with a relatively stable exchange rate unlike 11% in Nigeria with an exchange rate fully insulated from market forces.
2. Accelerated opening of new revenue streams: A. US Dollar Debit Card B. Banc-assurance C. Asset-based finance center D. Cash send on mobile.
3. Increased employee engagement.
4. Empowering communities in the bank's environs.
5. Enhanced customer experience: rolled out new functionalities on digital channels and installed a queue management system in its top branches.
Events worth noting:
The bank commenced business banking just two years ago as a segment and business banking is already the leading segment for the bank in asset growth. Interest income from loans increased 54% from June 30th to September 30th, 2015 on the back of business lending. Net loans increased by 11% from Q1 - Q3.
Loan loss rate on new loans has been consistently low, ranging from 0.9% - 1.1%.
NPL ratio of 3.5% as at H12015 is below the Kenyan banking industry average of 5%.
Interest income from loans to customers from Q2 to Q3 grew by a KeS figure equivalent to 88% of the actual increase in net loans from Q2 to Q3.
Paid an interim dividend of KeS0.20 and none in the prior year.
Barclays Kenya has no borrowed funds. Even if the 'balances due to banking institutions in the group' is taken as debt, it still comes out to be less than 30% of total capital which is healthy in my opinion based on plenty of back-testing over the years.
The company's balance sheet is not over-stretched and this gives the company needed flexibility to adjust to unforeseen externalities in its business environment.
Stable earnings growth
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I anticipate a forward PER of 7 for FY 2016 based on the closing price on February 22nd of KeS12.60. I see an upside of 25% - 30% fundamentally from KeS12.60 within the next twelve months.
The bank hit its 52-week low on January 26th, 2016 of KeS11.10 and has risen 15% since then. Tick, tock, tick...
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Concerns:
Net loans have exhausted 87% of deposits as at Q3 2015 and the most recent trend is disturbing. From Q2 to Q3, net loans rose by about KeS5.4B and deposits decreased by about KeS4B. The pace of asset growth will be curtailed if deposit mobilization does not rise in excess of anticipated asset growth.
Business banking is receiving the most (loan disbursement) but is contributing the least to the bank's deposit base. Management needs to create products that will lend itself to loyal instead of transient customers. The bank is new in this line of business and will require more time to bring over business banking deposits from heavyweight banks like KCB and Equity Bank.
17.25% increase in gross NPLs from June 30th - September 30th though, the bigger picture is in good shape. The bank needs to be wary of 'lending over-excitement" that may lead to some poor profile borrowers slipping through the cracks.
In the midst of a depressed banking sector in Sub-Saharan Africa, especially in hard commodity based economies like Nigeria and Angola, Barclays Bank Kenya is a shining light beneath the horizon. I will report back when the price hits at least KeS15.75 this year. Happy Alpha seeking!
I do not have any stake in Barclays Bank Kenya nor does anyone close to me.
Allow me to take you on a quick and concise trip to East Africa and the banking industry.
Barclays Kenya offers a full spectrum of solutions to its customers through its four business units: Retail, Corporate, Treasury & Card Services.
The key strategic drivers of the company's current performance and into the future are:
1. Expanded existing business through renewed SME focus including a new hire to spearhead the bank's renewed focus and optimism about the SME space in Kenya.
The bank has also increased fixed income trading with 18% of its total assets being committed to fixed income trading with none held to maturity as at September 2015 (all available for sale.) Bond yields are averaging 16% in Kenya with a relatively stable exchange rate unlike 11% in Nigeria with an exchange rate fully insulated from market forces.
2. Accelerated opening of new revenue streams: A. US Dollar Debit Card B. Banc-assurance C. Asset-based finance center D. Cash send on mobile.
3. Increased employee engagement.
4. Empowering communities in the bank's environs.
5. Enhanced customer experience: rolled out new functionalities on digital channels and installed a queue management system in its top branches.
Events worth noting:
The bank commenced business banking just two years ago as a segment and business banking is already the leading segment for the bank in asset growth. Interest income from loans increased 54% from June 30th to September 30th, 2015 on the back of business lending. Net loans increased by 11% from Q1 - Q3.
Loan loss rate on new loans has been consistently low, ranging from 0.9% - 1.1%.
NPL ratio of 3.5% as at H12015 is below the Kenyan banking industry average of 5%.
Interest income from loans to customers from Q2 to Q3 grew by a KeS figure equivalent to 88% of the actual increase in net loans from Q2 to Q3.
Paid an interim dividend of KeS0.20 and none in the prior year.
Barclays Kenya has no borrowed funds. Even if the 'balances due to banking institutions in the group' is taken as debt, it still comes out to be less than 30% of total capital which is healthy in my opinion based on plenty of back-testing over the years.
The company's balance sheet is not over-stretched and this gives the company needed flexibility to adjust to unforeseen externalities in its business environment.
Stable earnings growth
-----------------------------------------------------------------------------------------------------------
I anticipate a forward PER of 7 for FY 2016 based on the closing price on February 22nd of KeS12.60. I see an upside of 25% - 30% fundamentally from KeS12.60 within the next twelve months.
The bank hit its 52-week low on January 26th, 2016 of KeS11.10 and has risen 15% since then. Tick, tock, tick...
________________________________________________________________________
Concerns:
Net loans have exhausted 87% of deposits as at Q3 2015 and the most recent trend is disturbing. From Q2 to Q3, net loans rose by about KeS5.4B and deposits decreased by about KeS4B. The pace of asset growth will be curtailed if deposit mobilization does not rise in excess of anticipated asset growth.
Business banking is receiving the most (loan disbursement) but is contributing the least to the bank's deposit base. Management needs to create products that will lend itself to loyal instead of transient customers. The bank is new in this line of business and will require more time to bring over business banking deposits from heavyweight banks like KCB and Equity Bank.
17.25% increase in gross NPLs from June 30th - September 30th though, the bigger picture is in good shape. The bank needs to be wary of 'lending over-excitement" that may lead to some poor profile borrowers slipping through the cracks.
In the midst of a depressed banking sector in Sub-Saharan Africa, especially in hard commodity based economies like Nigeria and Angola, Barclays Bank Kenya is a shining light beneath the horizon. I will report back when the price hits at least KeS15.75 this year. Happy Alpha seeking!
I do not have any stake in Barclays Bank Kenya nor does anyone close to me.
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