• The banks however traded at an average price of 1.2 times of book value, higher than its closely related sector, insurance which has been priced at 0.9 times.
Listed commercial banks' earnings per share grew by 12.2 per cent in three months to March due to a shift in non-funded revenue expansion and cost cutting.
A review by Cytonn Investments shows that the banking sector has focused on revenue diversification, targeting transaction fee income, adoption of alternative channels of transactions like mobile, internet and agency banking to grow returns to investors.
However, this growth for 11 lending institutions was slower than the 14.4 per cent growth posted in the first quarter of 2018.
In the period, non-funded income recorded a 10.7 per cent growth while net interest income increased by 4.5 per cent.
“The higher growth in 2018 was because the sector was coming from a low performance base compared to a similar quarter in 2017 making it look like its higher. This quarters performance is good indicating resilience and profitability,” Cytonn Investments Investment Associate Caleb Mugendi said.
The growth in non-funded income has also been attributed to ventures such sale of insurance products, brokerage and fleet management as banks try to reverse effects on interest rate cap.
Cost to income ratio improved to 53.8 per cent in the quarter, from 56.6 per cent amid cost rationalization measure such as branch closures, staff layoffs in voluntary retirement plans and digitization strategies aimed at reducing operational costs.
The listed banks traded at an average price of 1.2 times of book value, higher than its closely related sector, the insurance which has been priced at 0.9 times.
Both sectors are currently trading below their 14-year averages of 1.9 times and 1.6 times, respectively.
This has been attributed to low penetrations level of insurance closely at three per cent for insurance and price in book valuations where insurance has to invest premiums to pay out claims and returns for investors.
“Investors in banking made higher returns as market was reluctant to slow growth in insurance sector,” investment analyst Ian Kagiri said.
Kagiri added that insurance is not making profits from its core business, rather in investments.
In the year ending Decemebr 31, 2018, Britam Holdings announced a loss amounting to Sh2.86 billion. Sanlam also posted a sh1.98 billion loss citing a challenging operating environment.
Kenya RE, the largest reinsurer in Kenya braved the tough economy to post a profit amounting to Sh2.278 billion, a 36 per cent decline from Sh3.5 billion in 2017.
The ongoing consolidations and regional expansion is expected to boost further growth of in the banking sector and returns to investors.
Consolidations in the sector have resulted in aiding in remediation of collapsed banks, as the takers seek to grow their market share, penetrate new market segments and expand their product offerings.
“The interest rate cap has pushed banks to move where the competition is not high. Moving forward, the effect will be stable sector with fewer and capitalized players able to withstand any systemic shocks,” Kagiri said.