Equity, NCBA Banks Tipped to Increase Dividends on Adequate capital and liquidity Buffers

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Equity Group and NCBA commercial banks are expected to increase their payout to shareholders ahead of their full-year (FY19) earnings in March.

According to Genghis Capital’s FY19 Kenyan Banking Sector Pre-earnings Note,  this will be supported by their adequate capital and liquidity buffers.

“We anticipate the two banks to increase their level of dividend in comparison to the 2018 Financial Year supported by adequate capital and liquidity buffers. Further, the management of both banks have alluded to the review of dividend,” the firm researchers note.

They expect Equity Group to issue a final dividend of Ksh 2.50 per share (total dividend of Ksh 2.50), a 25.0% increase from FY18, representing a dividend yield of 5.0%. We expect NCBA Group to issue a final dividend of Ksh 1.50 per share (total dividend of Ksh 1.50), a 20.0% increase from FY18, representing a dividend yield of 4.2%.

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However, Genghis says the yield by both banks is expected to remain below the projected banking sector average of 5.3 percent and hence they don’t expect these corporate actions, with other fundamental factors unchanged, should elicit significant positive market sentiment.

Equity Bank is expected to post an estimated 14.8% y/y rise in Profit after tax (PAT) to Ksh 22.8 billion driven by a 14.9% y/y rise in Non-Interest Revenue (NIR) to Ksh 29.7 billion, coupled with a 9.0% rise in Net-Interest Income (NII) to Ksh 45.2 billion.

NCBA is projected to report a 22.5 percent growth in profit after tax to Ksh.11 billion from improved interest revenue nettings and a steady rise in fees and commissions year on year at 25 percent.

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Together with estimated earnings from ABSA Bank Kenya Plc, Standard Chartered Bank of Kenya Plc, Co-operative Bank of Kenya Ltd, Diamond Trust Bank Kenya Plc, I&M Holdings Plc, and Stanbic Holdings Plc care likely to account for projected average Earnings per Share (EPS) growth of 12.8% y/y in FY19e compared to 9.7% y/y in 3Q19.

Net Interest Margin marginal rise (10bps q/q), no major shift post rate cap and improved NPL levels (34bps q/q) on the back of stringent risk assessment.

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