👋 Welcome to The Mwango Weekly by Mwango Capital, a newsletter that brings you a summary of key capital markets and business news items from East Africa.This week, we cover President William Ruto’s US state visit and Q1 2024 results from KCB, NCBA, and I&M.This week's newsletter is brought to you by The Kenya Mortgage Refinance Company.
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Ruto Invited to US for State Visit
A First in 15 Years: In a significant diplomatic development, Kenya’s President William Ruto embarked on a state visit to the United States last week, marking the first time in more than 15 years that an African leader has been extended such an invitation. The previous visit was by Ghana's President John Kufuor in 2008 during the Presidency of George W. Bush.
Accompanied by a delegation comprising cabinet members and senior public officials, President Ruto's visit culminated in the signing of numerous agreements amounting to USD 671.1M (KES 88.9 billion), representing approximately 0.6% of Kenya's GDP of KES 15.1T. The following is a summary of the major agreements reached during the visit:
Find more information here.
KCB Q1 2024 Results
KCB Group last week released its set of Q1 2024 results, with operating income totaling KES 48.5B, up 31.6% year-on-year. The Group recorded robust growth in profitability, with pre-tax profits growing by 52.7% to reach KES 21.2B. earnings per share were up a whopping 69.0% to KES 20.52, representing an earnings yield of 58.4%, which, in other words, for every KES 100 invested in KCB stock, it generated KES 58.4.
Balance Sheet: The asset base grew by 22.4% year-on-year to reach KES 1.9T, with loans and advances growing by 9.5% to KES 1T, representing 50.9% of the asset base as compared to 56.9% in Q1 2023. The stock of government securities totaled KES 393, up 45.8% to account for 19.7% of the asset base as compared to 16.5% in Q1 2023. In terms of balance sheet funding, customer deposits closed the quarter at KES 1.5T, up 25.4% to account for 75.2% of gross assets [Q1 2023: 73.4%].
Concerning NPLs: As at the end of Q1, the gross stock of non-performing loans (NPL) amounted to KES 205.3B, up 16.3% year-on-year growth to account for 20.2% of the loan book, [Q1 2023: 19.0%]. Net NPLs, however, rose marginally, up by 3.4% [Q1 2023: + 21.6%, Q1 2022: +64.9%, Q1 2021: +46.8%] to KES 77.9B, equivalent to 7.7% of the loan book [Q1 2023: 8.1%]. The NPL ratio edged higher by 90 basis points (bps) to 18.2% with trade, manufacturing, and real estate sectors contributing most to the growth. Across the subsidiaries, KCB Bank Kenya accounted for the largest change year-on-year in the actual stock of the NPLs at KES 25.1B, followed by NBK at KES 4B.
“We closed NPL at 18.2 the stock we closed at KES 205.3B. That’s not very good news, but as we've always said, we will be very transparent. We still maintain our focus on asset quality recovery. We believe that it is the right strategy, it will bear fruits. When you look at the segments contribution of NPL, whilst corporate has the largest proportion, it is the one that is going in the right direction [Q1 23: 33.5%, Q1 24: 32.9%]. Mortgage has gone up from 20% to 22%, SME has significantly gone up from just under 10% to about 15%. This talks to the environment that we operate in, high interest rate regime, obviously then forcing banks to pass on that to the customers impacting the cash flow. The environment is impacting the cash flow generated by our customers and hence getting that deterioration of the book."
KCB Group Chief Finance Officer, Lawrence Kimathi
Impressive Profits: Profit After Tax (PAT) for the quarter stood at KES 16.5B, representing a growth of 69.0%, and this was buoyed by the stellar 52.7% growth in Profit Before Tax (PBT). As a result of the impressive profits recorded in the quarter, at the Group level, Return on Equity closed at 28.7%, which is nearly 10 percentage points (pp) more than the 19.7% RoE recorded in Q1 2023. Across the banking subsidiaries, National Bank of Kenya (NBK), KCB Bank Tanzania, and KCB Bank Kenya recorded notable growth in RoE, 8.8% to 19.3%, 19.9% to 27.8%, and 21.2% to 30.8%, respectively.
Improving Capital Ratios: In FY 2023, the Group Board of Directors made a strategic decision to forgo dividend payments for the first time in more than 2 decades. This unprecedented decision was aimed at bolstering the capitalization of KCB Bank Kenya, addressing concerns over its low capital buffers. The latest financial results for Q1 2024 reflect significant progress in this regard. Key capital ratios have improved compared to Q4 2023 and Q1 2023, aligning with the plans laid out by the Board concerning improving the bank’s capital buffers.
"You remember [at the] same time last year, the buffer on KCB Bank Kenya on both core capital and total capital was very thin. I think on core capital it was 0.7% and total capital was about 0.5%. When we closed the year and took the decision not to distribute dividends, the buffer on core capital for KCB Bank Kenya was 1.3%. 1.3% is not enough to fund growth and issue dividends. So we took the decision not to distribute dividends. We invested that money obviously to fund the growth of KCB Bank Kenya's balance sheet and within 3 months, we've been able to triple the buffer to 3.6%. I think it was a good decision."
KCB Group Chief Finance Officer, Lawrence Kimathi
Share Price: As at the end of the last trading session last week, which also marked Paul Russo’s 2 years as KCB Group CEO, the share price was KES 35.15, up 10.4% week-on-week, up 60.5% year-to-date, and up 13.9%% over the last one year. Separately, KCB was last week promoted to the MSCI Frontier Markets Index, effective 31st May, joining Safaricom PLC, Equity Group, and East African Breweries Limited (EABL).
Find our analysis here, the results here, the press release here, the investor briefing here, and the presentation here.
NCBA Q1 2024 Results
In Q1 2024, NCBA Group’s asset base expanded by 10.5% year-on-year to reach KES 694B, with the deposit base and loan book growing by 9.7% and 11.6%, respectively. Surging interest expenses ate into interest income, causing a decline in Net Interest Income (NII), while a drop in FX Trading Income slowed the growth in the Group NFI. On a net basis, earnings were up marginally relative to Q1 2023.
Asset Allocation: The loan book grew by 11.6% to reach KES 320.5B, accounting for 46.12% of the asset base [Q1 2023: 45.67%]. Government securities holdings declined by 9.28% to reach KES 212.6B, which was equivalent to 30.59% of the balance sheet, down from 37.26% in Q1 2023. Customer deposits were up 9.7% to KES 548.1B, equal to 78.87% of the asset base from 79.47% in Q1 2023, and the loan-to-deposit ratio closed the quarter at 58.48% [Q1 24: 57.46%].
NII Declines: Interest income from loans was above KES 10B in Q1 for the first time at KES 11.6B - up 48.0%, while that from government securities totaled KES 6.7B, up marginally by 1.7% from Q1 2023. When taken together, total interest income for the quarter totaled KES 19.1B, up 29.8%. Offsetting gross interest expenses which totaled KES 10.8B and grew by a whopping 70.8%, Net Interest Income (NII) for the quarter was KES 8.3B, down 1.2%.
FX Trading Income Down 12%: Across Non-Funded Income (NFI), foreign exchange trading was the only revenue stream that exhibited a decline compared to Q1 2023, falling by 11.9% to KES 2.3B to account for 30.3% of NFI [Q1 2023: 36.9%]. Buoyed by fees and commissions on loans and advances which expanded by 9.2% to KES 3B, the aggregate NFI for the quarter stood at KES 7.7B, up 7.4%, which is lower than the growth of 18.53% and 15.53% recorded in Q1 2023 and Q1 2022, respectively. Operating income for the quarter edged higher by 2.76% to KES 15.9B, with the contribution ratio of NII and NFI standing at 52:48 [Q1 2023: 54:46].
Profitability: PBT for the quarter grew by a marginal 2.2% to reach KES 6.5B, which was equivalent to 40.9% of operating income [Q1 2023: 41.1%]. The net result was KES 5.3B, up 4.7%, and Earnings Per Share were KES 3.22, up 4.5% relative to Q1 2023.
Share Price: As of market close last week, NCBA’s share price was KES 41.05, representing an appreciation of 7.18%, 5.39%, and 25.9% week-on-week, year-to-date, and over the last one year, respectively.
Find our analysis here and the results here.
I&M Q1 2024 Results
I&M Group PLC became the 6th major Kenyan listed lender to release Q1 2024 results. The Group recorded a 13.2% year-on-year growth in its asset base to reach KES 532.9B. Provisions were slashed by 6.4% to KES 1.5B after growing by more than 3X to KES 1.6B in Q1 2023. Profit growth rebounded in the quarter, with net income up 35.4% compared to Q1 2023 when it declined by 2.0%.
Loan Book on Course to KES 300B: The aggregate stock of loans and advances grew by 13.1% to reach KES 291.5B, equivalent to 54.7% of the asset base [Q1 2023: 54.5%]. There was a reduction in asset allocation towards government securities, with the gross stock declining by 2.1% to reach KES 108.4B - equivalent to 20.3% of the asset base, a decline from 23.4% in Q1 2023. In terms of the liabilities on the balance sheet, the Group’s customer deposits were up 18.4% to reach KES 383.9B, which was equivalent to 72% of the balance sheet as compared to 68.7% in Q1 2023.
Revenue Landscape: Interest income from loans and advances edged higher by 57.6% [Q1 2023: +21.3%] to reach KES 11.4B, while that from government securities grew by 23.2% to KES 3.3B - which is remarkable growth when compared to the 3.9% recorded in Q1 2023, and the total interest income for the quarter was up 53.1% to reach KES 15.6B. Gross interest expenses stood at KES 7.2B, up a whopping 76%, and when offset by gross interest income, NII was KES 8.4B, up 37.7%.
NFI was down 9.4% to reach KES 3.2B as compared to a growth of 58.8% to KES 6.1B in Q1 2023, and the decline in NFI in the quarter was on the back of depressed FX Trading Income - which fell by 34.4% to reach KES 945.7M, equivalent to 29.9% of NFI [Q1 2023: 41.4%].
Back to Solid Profit Growth: PBT was up 38.5% to reach KES 4.9B, as compared to a decline of 0.2% in Q1 2023, bringing PBT as a share of operating income to 42.5% as compared to 37.0% in Q1 2023. On a net basis, profits grew by 35.4% to KES 3.6B, and Earnings Per Share (EPS) amounted to KES 2.01, up 30.5%. Notably, PBT, PAT and EPS all recorded positive growth in the quarter as compared to the declines registered in Q1 2023.
Share Price: As of market close last week, I&M’s share price was KES 18.55, representing an appreciation of 2.49%, 6%, and 9.12% week-on-week, year-to-date, and over the last one year, respectively.
Find our analysis here and the results here.
Markets Wrap
NSE: In Week 21 of 2024, EA Portland was the top-performing stock, up 12% to close at KES 7.08. Stanbic was the worst-performing stock, down 12.8% to close at KES 108.75. The NSE 20 was up 0.7% to close at 1,717.4 points, the NSE 25 increased by 2.7% to close at 2,972.6 points, with the NASI index increased by 2.3%, to close at 113.1 points. Equity turnover was up 153.2% to KES 2.2B from KES 881.4M in the prior week while bond turnover closed the week at KES 22.9B compared to the prior week’s KES 30.5B.
Treasury Bills: The weighted average interest rate of accepted bids for the 91-day, 182-day, and 364-day were 15.9453%, 16.5638%, and 16.6231% respectively. The total amount on offer was KES 24B with the CBK accepting KES 46B of the KES 46.7B bids received, to bring the aggregate performance rate to 194.75%. The 91-day and 364-day instruments recorded 325.35% and 156.83% performance rates, respectively.
Eurobonds: In the week, the yields were mixed across the 7 outstanding papers.
KENINT 2024 was the only paper whose yield fell week-on-week, down 65.10 bps to 9.098% while KENINT 2028 rose the most, up by 47.70 bps to 9.074%. KENINT 2048 rose the least, up by 33.90 bps to 10.065% The average week-on-week change stood at 33.80bps.
Except for KENINT 2034 which gained 30.60 bps to 9.643%, yields on the remaining papers declined on a year-to-date (YTD) basis, with KENINT 2024 falling the most by 343.20 bps while KENINT 2048 fell the least at 6.20 bps.
All prices fell week-on-week, except KENINT 2024, which gained by 0.1% to 99.82. KENINT 2048 recorded the highest losses at 3.1% to 83.690, while KENINT 2027 had the lowest losses at 0.9% to 96.781. YTD, KENINT 2027 rose the most at 2.8% to 96.781, while KENINT 2048 rose the least, at 0.6%. Only the KENINT 2034 price fell YTD, down 1.5% to 79.288.
Market Gleanings
⚡| Kenya Power’s Call for Ban on Copper Exports | Kenya Power has called for a total ban on waste copper to curb rampant vandalism of power infrastructure. During a stakeholders’ forum with the Consumers Federation of Kenya (COFEK), the Scrap Metal Council, and scrap metal dealers, Managing Director & CEO, Dr. (Eng.) Joseph Siror linked local trade in waste copper to vandalism.
🏢| Copia Kenya Enters Administration | Copia Kenya Limited has entered administration as of 23rd May 2024, with Makenzi Muthusi and Julius Ngonga of KPMG Kenya appointed as Joint Administrators under the Insolvency Act of 2015. The company will continue its operations under the Administrators' supervision while they assess its affairs and develop future proposals.
Separately, Japanese paint manufacturer Kansai Coatings Kenya entered into members' voluntary liquidation. KVSK Sastry was appointed as the liquidator with creditors being advised to submit their claims by 31st May 2024.
🏦| Across Banking | In the upcoming 17th Annual General Meeting of Family Bank, a key agenda is the proposed reorganization of the company's shareholding structure. This change involves the establishment of a Non-Operating Holding Company, a move that is subject to approval from the Central Bank of Kenya.
Separately, the Bank announced a change in leadership, with Arch. Francis Gitau stepping in to replace Dr. Wilfred Kiboro as the Chairperson of the Board of Directors. Additionally, the 6th interest payment for the 2021 Medium Term Note Program is due on 21st June 2024, with book closure scheduled for 6th June 2024.
Stanbic Holdings has issued a notice to shareholders in regards to the change in auditors of the company to Messrs Deloitte & Touche LLP as a part of the outcomes of the deliberations at the Annual General Meeting held on 16th May.
The bank is also in the process of upgrading its banking system 'Temenos 24', or T24, to the latest version, and the upgrade will be carried out in stages to minimize any potential service disruptions and is scheduled to be finalized by the year-end.
💼| New CEO at Jubilee Life Insurance | Jubilee Life Insurance Limited last week announced the appointment of Asman Mugambi Ibrahim as its new Chief Executive Officer. His previous positions include General Manager of Commercial and Operations at ICEA LION Life, General Manager - Operations at Liberty Life, and Head of Operations & Customer Servicing at UAP-OLD Mutual Group.
⚖️| Carrefour Bargaining Power Abuse | The High Court has confirmed a previous ruling that Carrefour, operated by Majid Al Futtaim Hypermarkets Limited, was found to be misusing its buyer power. The judgment indicated that Carrefour’s dealings with its supplier, Orchards Limited, a yoghurt producer, were deemed to be unfair.
📄| More Feedback on the Finance Bill, 2024 | Last week, several industry associations in Kenya expressed concerns over various proposals in the Finance Bill, 2024. The Kenya Association of Air Operators highlighted the risk to the sector's sustainability due to the proposed elimination of VAT exemptions. The Kenya Association of Manufacturers raised concerns about the proposed Export Investment Promotion Levy, the eco-levy on selected goods, the Import Declaration Fund, and changes to the Excise Duty Act. The Kenya Bankers Association also urged a reconsideration of the proposed 16% VAT on financial transactions.
The Association of Kenya Insurers called for the rejection of the proposed motor circulation tax. Finally, the Edible Oil Manufacturers Association warned of a potential price surge in cooking oil due to the proposed 25% excise duty on vegetable oil. Last week on #MwangoSpaces, we held a space on Understanding the Impact of the Finance Bill 2024 and you can find a recording here.
As a reminder, members of the general public have up to 5 pm, May 28th, 2024 to submit input on the Finance Bill 2024. The public can send comments to cna@parliament.go.ke or hand deliver them to the Office of the Clerk, First Floor, Main Parliament Buildings.
Further on public participation, the Kenya Revenue Authority (KRA) is calling for public input in the valuation process of used motor vehicles. This is in compliance with a court ruling and in the spirit of the Constitution, which requires KRA to conduct public participation to gather views on the Free on Board (FOB) values for used motor vehicles before implementing a new motor vehicle valuation database.
🔌| Google’s Umoja Fiber Optic Cable | Last week, Google announced a transformative project named Umoja, a fiber optic cable designed to boost digital connectivity between Africa and Australia. The cable, which will be rooted in Kenya, is set to traverse several African countries before crossing the Indian Ocean to Australia.
🇹🇿| Tanzania Investment Roundup | Rocky Mountain GTL is set to construct a USD 420M plant in Tanzania, aimed at producing diesel and jet fuel from natural gas. The plant, which is expected to be operational within two years, will initially produce 2,500 barrels of fuel per day.
Meanwhile, Kioo Limited, a Tanzanian glass bottle manufacturer, has received a capital injection of USD 60M from the International Finance Corporation and Standard Bank of South Africa, providing a significant boost to the company.
Across telecoms, TowerCo of Africa Tanzania, a subsidiary of AXIAN Telecom, has secured a USD 30M financing agreement with British International Investment. This funding will facilitate the construction of an additional 200 telecom sites in Tanzania.
Charts of the Week
