Kenya Co-op bank safest investment portfolio, report

By James Wafula in Nairobi.

Kenya’s Co-operative Bank is among top lenders in East Africa recognized by the  investment bank, Renaissance Capital as safest to do business with in terms of investment and loans portfolio.

This is according to Renaissance Capital which has given a top buy rating to  Coop Bank Kenya. Its latest report has praised the bank for efficient fiscal and digital banking transformation under group CEO Managing Director Dr. Gideon Muriuki. The bank has improved in terms of asset value, projecting a better 2022 for the country’s banking sector.

This, despite impending political risks associated with the general election slated for August 9, 2022 and after shocks of the still lingering Covid-19 global pandemic.

”We adjust our risk-free rate to 10.5 per cent from 10 per cent on changes in the 10-year government bond. We also raise our risk premium by 50 basis points across the board to account for the heightened risk in an election year,’’ Renaissance says in its latest report.

“These changes increased our cost of equity for Coop Bank to 21.5 per cent from 20.4 per cent.

According to the report, Coop Bank is trading at Price–to–book of 0.7x with a potential Return on Investment (RoI) 17.9 per cent, respectively.

Coop Bank has through its Kingdom Bank subsidiary,  enjoyed a good run buying out and eventually acquiring Jamii Bora Bank.

”For Coop, we raise our Take Profit order (TP) by 12 per cent to Sh15.7, implying 20.8 per cent upside potential. We upgrade our rating to Buy from Hold, as we believe that Coop’s earnings stand to benefit from continued economic recovery and a possible moderation in its provisioning charge going into 2022,’’ the forecast reads in part.

Coop Bank was later than peers in booking impairments, meaning that while the Combined operating Ratio (CoR) in the other Kenyan banks tapered off in 2021, Coop Bank’ stayed elevated, reaching 2.4 per cent in the nine months to 2022.

Following a 16 per cent Year-to date reduction in absolute NPLs on account of intensified recovery efforts from management, Renaissance Capital believes that the bank could see some asset quality respite in 2022.

”We estimate Coop Bank is trading at FY22E P/B and P/E of 0.7x and 4.1x, respectively, on FY22E RoE of 17.9 per cent, with an FY22E dividend yield of 12.1 per cent,’’ the report reads in part.

The positive rating of local banks by Renaissance Capital defies a downgrade issued by Moody’s last year.

The global rating agency had indicated that top banks’ large exposure to government securities posed a risk to their credit profile, but top lender Cooperative Bank had surmounted this hurdle and is as “fit as a fiddle” says the report ■

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