NSE’s poor run against peers recur

The Nairobi Securities Exchange (NSE) performed poorly compared to peers in Africa despite major dividend payouts starting this week.

The securities market witnessed a significant decline last week, with the year-to-date performance down 30 per cent in US dollar terms and 22 per cent in local currency, says Africa-markets.com.

This even as commercial banks that constitute a substantial portion of the trading volume on the exchangel make major dividends payments this week, a demonstration of better performance compared to the immediate post Covid-19 era.

Dividends payments

NCBA Group, I&M Bank, Absa Bank, Standard Chartered Bank Kenya, CIC Group, and KCB Group are among the banks expected to distribute dividends, signalling a positive outlook for the banking industry. Other companies set to pay dividends include CIC, Bamburi, Total, Bank of Kigali, BOC, Umeme and many others.

“At the Nairobi Securities Exchange, the NASI, NSE 25 and NSE 20 share price indices decreased by 5.9 per cent, 5.3 per cent and 2.8 per cent, respectively, during the week ending May 11,” CBK said in its latest weekly bulletin.

“Similarly, market capitalisation, equity turnover and total shares traded declined by 5.9 per cent, 0.4 per cent and 4.6 per cent, respectively,” the bulletin noted.

Despite the strong performance of commercial banks, their shares remain bearish which can provide a good entry point for investors willing to buy the stocks.

The bearish market is due to sell-off of Kenya’s securities by foreign investors while local investors shed their holdings due to the high cost of living. NSE’s underperformance has left investors concerned about the factors contributing to this decline.

Analysts further attribute current market’s struggles to various factors, including a lack of investor confidence, global economic uncertainties, and the prevailing economic challenges facing the country.

The bourse’s year-to-date decline in both dollar and local currency terms has raised concerns among market participants with investors closely monitoring the regulatory environment and potential government interventions aimed at revitalising the capital markets.

As the NSE grapples with its performance in Africa, market participants and stakeholders are calling for measures to stimulate investor sentiment and restore confidence in the exchange. Encouragingly, the strong performance of the commercial banking sector and manufacturers offers a glimmer of hope and indicates the presence of resilient segments within the Kenyan economy.

Moving forward, the NSE will need to address the underlying issues affecting its performance to attract both local and foreign investors. The successful performance of the commercial banking sector underscores the importance of robust financial management and prudent investment strategies in navigating challenging market conditions.

While uncertainties persist, market players are hopeful that proactive measures will be implemented to revitalise the NSE and create an enabling environment for sustainable growth.

Current LIBOR rates

Equity CEO Dr James Mwangi shed light on the situation, stating: “If you look at borrowed funds, they’re in dollars. And they were LIBOR+. Now, LIBOR moved from 0.35 per cent when we borrowed, and it’s now 5.5 per cent. What rate did we borrow at? We borrowed at an average of 2.7 per cent to 3.5 per cent. What are we paying now? Between 8 and 9 per cent. Three times on Sh160 billion.”

The drastic increase in LIBOR rates has forced Equity Bank to pay substantially higher interest rates on its borrowings, impacting negatively its bottom line.

The bank borrowed at an average rate of 2.7 per cent to 3.5 per cent, but with the current rates, it is now paying between 8 and 9 per cent. This significant rise in borrowing costs puts a strain on the bank’s financial performance, eroding its profit margins.

Pretax profits increase

The bank’s total income for the financial year grew by 28 per cent to Sh144. 3 billion, with net interest income contributing 60 per cent while non-funded income grew 40 per cent.

Non-funded income grew by 33 per cent to close the year at Sh58. 3 billion while net interest income grew by 25 per cent to Sh86 billion.

Equity Group Holdings said on Tuesday its first-quarter 2023 pretax profit jumped 10 per cent to Sh16.9 billion ($124 million), as its loan book rose.

Despite the challenges posed by rising interest expenses, the bank remains committed to its long-term growth strategy.  The bank continues to invest in expanding its product offerings and improving its operational efficiency to maintain its competitive position in the market.