NSE sheds Sh210bn in two weeks of bank stock selloff

Stock market investors have lost Sh210 billion paper wealth in the past two weeks as the falling share prices of telecommunications company Safaricom #ticker:SCOM and most bank counters pulled the NSE 20-Share Index to a 10-year low.

The Nairobi Securities Exchange (NSE) 20-Share Index, which captures movement of select blue chip stocks, has fallen to 2,682 points, a level last seen in March 2009.

Investor wealth as measured by market capitalisation has shrunk to Sh2.199 trillion from Sh2.4 trillion at the beginning of this month.

Bank stocks, which account for 28 percent of the NSE’s total market valuation and a fifth of the market’s 96.2 billion total issued shares issued shares, have been on a decline partly attributed to the end of the dividend announcements season.

“Banking stocks have continued to drag the market lower in what we think could be a combination of book closures for dividend (for the 2018 financial year), coupled with contagion effect of trade wars and a bearish 2019 sector outlook,” said Standard Investment Bank in a note to investors.

Safaricom, the largest listed firm by market capitalisation, has shed Sh2.85 this month closing Wednesday at Sh26.70 despite its books remaining open for a Sh1.87 combined final and special dividend for the year ended March 2019.

This has had the effect of shaving off Sh114 billion from its market valuation, which stands at Sh1.07 trillion. The firm’s impact on the price-weighted NSE 20 share index is however less pronounced due to its the lower nominal value compared to stocks such as EABL and BAT Kenya.

In the past two weeks, the share prices of the two-largest listed lenders — Equity Bank and KCB — have retreated by 13.3 percent and 13.1 percent respectively, shaving Sh21 billion and Sh17 billion off their market valuations.

Standard Chartered and Cooperative Bank have seen their valuations fall by Sh5.6 billion and Sh1.7 billion respectively after their share prices retreated by 8.3 and 2.4 percent this month.

I&M Holding’s stock has also significantly affected the collective valuation of bank stocks, with its price falling by half from Sh120.25 to Sh60.25 in a downward price correction after the lender closed books on a one-for-one share bonus on May 10.

Its market valuation currently stands at Sh24.89 billion, but is expected to rebound once the new 413.4 million shares are credited into shareholders’ accounts on May 23.

Eight of the lenders are also trading ex-dividend, meaning that they have already closed their shareholder registers for 2018 payments.

Stocks tend to lose their lustre for dividend chasing investors once books have closed, with prices correcting back as demand weakens and some investors who have locked in the payout look to sell their shares.

The banking sector earnings outlook for this year is also clouded by the expected higher provisions for bad loans, which will directly hit profits and in turn dividend payments.

Genghis Capital analyst Patrick Mumu in a sector report on banks, predicted that loan provisions for the industry will rise by an average 53 percent year-on-year in 2019 as the IFRS base effect comes into play.

The new IFRS 9 accounting standards took effect from January 2018, but lenders were given a one-off opportunity to pass through some provisions in their reserves rather than the profit and loss account.

This year their bottom lines are however expected to suffer a hit as a result, especially with the sector bad loans ratio in the double digits.

“The asset quality in the banking sector has also been deteriorating over the past three years with the average NPL ratio recorded at 12 percent in December 2018 compared to 6.8 percent at the end of 2015, driven by a challenging operating environment,” said Mr Mumu.

Equity Bank #ticker:EQTY is so far the only listed lender that has released its quarter one results, which showed a 14 percent rise in provisions for bad loans to Sh409.9 million.

Equity Group’s gross non-performing loans rose by 22.4 percent or Sh5.4 billion to Sh29.4 billion in the three months to March, largely on the back of a deteriorating balance sheet in its Tanzania subsidiary where nearly a third of loans are not performing.

Other large blue chip counters at the NSE have in the meantime returned mixed performances this month.

BAT Kenya and Bamburi’s share prices remained unchanged Wednesday at Sh510 and Sh118 respectively compared to the beginning of the month.

EABL on the other hand has shed Sh19.25 or 8.6 percent in the two-week period, while KenGen #ticker:KEGN is down 0.6 percent at Sh6.12 per share.