By JAMES ANYANZWA

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It was a case of mixed results for the share prices of listed banks in the region over the past three months, with those in Kenya and Uganda growing, fuelled by renewed investor confidence in the lenders’ growth outlook for 2018, and a positive economic outlook for the two countries.

In Kenya, the share prices of listed banks increased by an average of 12 per cent between February 26 and April 25, while in Uganda they grew by 17 per cent over the same period.

But in Tanzania and Rwanda, listed banks’ share prices remained unchanged or recorded a drop, according to data from the countries’ respective stock exchanges.

In Kenya, banking stocks are registering increased demand in the wake of reduced political jitters, falling inflationary pressures, increased rains that are likely to translate into improved harvests and news that the interest rate cap, which has impacted banking profitability, is likely to be reviewed.

According to the World Bank, Kenya’s positive economic outlook is underpinned by a recovering agricultural output due to favourable rains and the easing of political uncertainty, which is lifting business sentiment.

However, partially mitigating these favourable factors is the drag on growth, in the face of weak private sector credit growth.

Attractive dividends

In Uganda, share prices of listed banks have risen, triggered by attractive dividends declared by the lenders and bullish investor sentiment on the country’s economic outlook.

According to the Bank of Uganda, the country’s economic outlook is more positive than previously predicted and there are signs of increased business confidence. Uganda’s economic growth rate is projected at an average of 6.5 per cent in the next three years.

During the three months, Barclays Kenya, which is set to rebrand to Absa, recorded the highest share price increase of 27 per cent to Ksh13.15 ($0.13) per share, followed by KCB Group whose share price grew by 20.23 per cent to Ksh52 ($0.52) per share.

Equity Bank’s share grew by 12.72 per cent to Ksh48.75 ($0.48) per share while that of Co-operative Bank grew by 10.18 per cent to Ksh18.4 ($0.18) per share.

In Uganda, Bank of Baroda saw its share price grow by 25 per cent to Ush150 ($0.04) per share from Ush120 ($0.03) in the three months.

It was followed by KCB Group, which is cross-listed on the Ugandan Securities Exchange with its share price growing by 20 per cent to Ush1,958.88 ($0.52), from Ush1,633 ($0.43) in the same period last year.

The share prices of Tanzania’s listed banks, however, declined by an average of 0.86 per cent pulled down by CRDB Bank share which was down 10 per cent to Tsh180 ($0.07) per share from Tsh200 ($0.08) per share.

While the share price of KCB Tanzania grew by 10 per cent to Tsh 1,175 ($0.51) from Tsh1,070 ($0.46), those of Mufindi Community Bank, Yetu Microfinance, National Microfinance Bank, Mkombozi Commercial bank, Mwalimu Commercial Bank, Maendeleo bank and DCB Commercial Bank remained unchanged during the period.

Tanzania shutdown

In January, the Bank of Tanzania shook investor confidence by shutting down five lenders that had inadequate capital. It is also feared that reforms in Tanzania’s mining sector could lock out foreign commercial banks from the lucrative sector.

The Mining Regulations on Local Content (2018), which came into effect in January, require mining companies to have a bank account in a Tanzania-owned bank in the country.

The average share prices of Rwanda’s listed banks dropped by an estimated 0.2 per cent. While the share prices of the cross-listed Equity and KCB remained unchanged at Rwf 350 ($0.4) and Rwf 340 ($0.39) per share respectively, the stock of Bank of Kigali declined to Rwf 290 ($0.33) per share from Rwf295 ($0.34) per share ($0.1). I&M Bank Rwanda’s share increased to Rwf97($0.11) from Rwf95 per share in the same period.

According to Moody’s Investor Service, Kenyan banks’ profitability remains one of the highest, both regionally and globally, providing good protection in hard times.

The three large banks, KCB, Equity and Cooperative’s capital buffers further support their overall solvency and their ability to withstand unexpected losses, Moody says.

Kenya growth prospects

According to the rating agency, Kenya has strong economic growth prospects, well above the sub-Saharan Africa level, supporting business growth for its banks.

“Despite their different business models and areas of vulnerability, we expect all three banks to maintain healthy profits and strong capital, that will continue to provide substantial protection against downside risks and contribute to support their credit quality,” said Moody’s.

KCB, Equity and Co-operative Bank have reacted differently to the challenging operating conditions. Equity Bank has reduced its risks, looking to government securities while KCB Bank and Cooperative Bank have continued to grow their loan books in the consumer and corporate lending segments, despite the challenging operating environment.

According to Moody’s Co-op erative Bank’s profitability continues to be supported by its entrenched domestic franchise (as the country’s third-largest bank in terms of assets and with a fairly large customer base of 6.8 million) and the ongoing benefits from its transformation strategy.

Last year, the East African region was hard hit by a prolonged drought caused by El Nino and high temperatures linked to climate change that impacted farm produce, causing countries such as Kenya to subsidise flour prices.

In Kenya, the drought hindered agricultural productivity and resulted in high inflation for food prices while prolonged political activities and the presidential election impasse hurt private-sector activity.

In Rwanda, the slowdown of economic activities in the first half of 2017 impacted, the financial sector through weaker credit demand and increase of non-performing loans in sectors like agriculture.