Investors await windfall as most banks resume dividend payouts
By John Otini, March 4, 2022Most commercial banks are expected to resume their dividend payments on expectations of better earnings due to sharp declines in loan loss provision and improved economic conditions in the last three quarters of last year, analysts say.
“We expect the banking sector to report an overall increase in profitability for the full year 2021 with our profit before tax estimate ranging from Sh190 billion to Sh200 billion,” Sterling Capital Investment Bank said in a research note to investors.
The marked improvement in economic performance in 2021, it added, had a direct impact on the performance of its covered banks in the first three quarters of the year with a similar performance expected in the last one.
“We expect the higher earnings to result in the resumption of dividend payouts with some banks such as Stanbic (Sh1.70) and NCBA (Sh0.75), Standard Chartered (Sh.5) and KCB (Sh1) already paying out interim dividends in quarter one and quarter three respectively,” according to the report.
Loan loss provisions
Banks suspended dividend payments when the Coronavirus (Covid-19) hit the sector while some even recalled their dividend announcements to preserve their capital.
The main drivers of profitability in the first three quarters of the year have been sharp declines in loan loss provisions following gradual improvement in asset quality.
Bank’s also experienced growth in interest earning assets and its positive contribution to interest income in addition to growth in non-funded income particularly in the second quarter of 2021.
“Absa, NCBA and Equity were our top banks in terms of year-on- year growth in after tax profitability in the first three quarters of last year with Absa Bank Kenya reporting the highest proportional year- -on-year growth rate as a result of 2020 base effects,” the research note said.
Banking sector revenues will also rise due to three major acquisitions which took place; Equity (Banque Commerciale Du Congo), KCB (Banque Populaire du Rwanda) and I&M (Orient Bank Ltd Uganda).
The impact of the acquisitions was particularly evident in the financial performance of Equity and KCB Bank.