This archive report was first published on 15 June 2020.
Kenya's banking sector has faced significant challenges in the wake of the COVID-19 pandemic, with asset quality deteriorating in Q1'2020. According to Cytonn Investments' Q1'2020 Banking Sector Report, the gross NPL ratio increased by 0.9% points to 11.3% from 10.4% in Q1'2019.
The report, themed 'Deteriorating Asset Quality amid the COVID-19 Operating Environment,' analyzed the Q1'2020 results of the listed banks. In accordance with IFRS 9, banks are expected to provide for both incurred and expected credit losses, leading to an increase in NPL coverage to 57.4% in Q1'2020 from 54.5% in Q1'2019.
David Gitau, Investment Analyst at Cytonn Investments, noted that the COVID-19 pandemic had a significant impact on the banking sector, with four key drivers shaping the sector in Q1'2020: Regulation, Consolidation, Asset Quality, and Capital Conservation.
On the regulatory front, the Central Bank of Kenya provided commercial banks and mortgage finance companies with guidelines on loan reclassification and provisioning of extended and restructured loans as per the Banking Circular No 3 of 2020.
I&M Holdings took the top position in the weighted score of both franchise and future growth opportunity perspective, while Diamond Trust Bank Kenya took the top position from a future growth opportunity perspective, despite having a weak franchise score.
