NAIROBI, Kenya, May 22 – Of the four banks that have so far announced 2017 first quarter numbers, DTB posted the best results with a 7 percent year on year rise in Earnings Per Share (EPS) to Sh5.92.
Numbers were mainly boosted by a 28.4% y/y decline in loan loss provision.
Operating income before loan loss provision was down 3.3 percent. Notably, regional performance was positive delivering 29.9 percent growth in Profit after Tax.
- Positive regional performance.
Among listed banks, DTB retains the highest contributing regional units. Deposits grew 6.7 percent while loans shed 1.7 percent. Net Interest Income (NII) and Non-Interest Revenue (NIR) were up 5.1 percent and 2 percent respectively.
The positive regional contribution, aided mainly by the bank’s key shareholder, Agha Khan Fund for Economic Development (AKFED), continues to shield the bank from over-reliance on the Kenyan unit.
- Non-Performing Loans (NPL) remained stable at 3.5 percent.
This was however up 30 bps q/q from 3.2 percent. There was slight weakness in the regional unit where NPLs grew 13.7 percent. Regional NPL ticked up for the first time in 4 quarters to 3.5 percent.
We positively note the slowdown in lending in the unit and therefore expect at worst, a maintained NPL level.
Kenya NPL rose 7.7 percent with NPL ratio closing at 3.5 percent from 2.7 percent in 1Q16.
DTB has the lowest NPL ratio among listed banks as well as the highest coverage ratio.
The 28.4 percent decline in loan loss provision came as a surprise to us considering the bank has been keen on maintaining coverage levels at 90 percent.
- Non-Interest Revenue (NIR) up 8.3 percent .
This was on the back of a 7.5 percent and 10.1 percent growth in fees & commission income and FOREX income respectively. NIR to total income remained one of the lowest in the sector at 21.7 percent.
We do not foresee the contribution rising significantly in the near term though we expect FOREX income growth to continue being sustained by the bank’s regional franchise.
- Cost To Income (CTI) below industry average at 44.9%.
Despite a 10.3 percent jump in total operating costs, the bank’s CTI was in line with historical average of 43 percent.
Historically, DTB has retained above sector cost growth though managed below sector CTI. We do not expect to see significant erosion on CTI going forward given that the firm is on the tail end of its expansion strategy.
Net Interest Margin (NIM) down to 6.4 percent.
This is from 7.5 percent in 1Q16. Loans and deposits were up 4.8 percent and 22.1 percent. Evidently, the bank is shoring up on liquidity with levels at 52 percent Vs. 41.9 percent in 1Q16.
“We are happy with the bank’s conservative strategy with loans to total assets at 56.2 percent from 62.9 percent which will offer protection from declining loan WAIR. NIM performance would have been better if Cost of Funds (CoF) was lower. We believe it is still high at 5.3 percent thereby eroding the benefit of strong deposit growth,” said Analysts at Genghis Capital.