Zachary Ochuodho @zachuodho

The local banking sector showed resilient performance despite the tough operating environment marked by cash constraint on businesses and households.

An analysis of the financial performance of listed banks done by the Cytonn Financial Services Research team has ranked I&M Holdings and Co-operative Bank of Kenya as the best performing banks for the first quarter of this year.

I&M Holdings emerged top of the ranking while Co-operative Bank moved from position three to two for the period which ended March 30.

The good performance rankings are based on two key parameters that Cytonn Research refers to as franchise value and intrinsic value.

Franchise score measures the broad and comprehensive business strength of a the bank across 13 different metrics, while intrinsic score measures the investment return potential. 

For the franchise value ranking, the earnings and growth metrics, as well as the operating metrics, are looked into.

The report indicates that I&M Holdings obtained 51 in the franchise value score, scored 2 in intrinsic value and got a weighted score of 21.6 to enable it top the list of banks listed on the Nairobi Securities Exchange.

Position three

Cooperative Bank jumped from position three to second mainly due to its improvement in the gross non-performing loans (NPLs) ratio to 10.8 per cent during the period under review from 11.2 per cent in first quarter of 2019.

“Co-operative Bank emerged top in the franchise ranking due to high-efficiency levels as evidenced by a low cost to income ratio which came in at 58.1 per cent compared to an industry average of 61.4 per cent,” the report revealed.

KCB Group, which has for many times ranked top among the banks declined to position three from position 1 in 2019, mainly due to deterioration in the cost to income ratio to 61.1 per cent in the first quarter of this year from 56.2 per cent in the same period last year thereby worsening the franchise value score.

The report, however, disclosed the group’s increased channelled diversification will help it to continue improving its operational efficiency. 

“Continued emphasis on these alternative channels of transactions, as the bank rides on the digital revolution wave, will likely lead to further cost to income ratio improvements,” it said.

David Kingoo, a senior investment analyst at Cytonn Investment said Co-op Bank performed exemplarily at a time when the gross NPL ratio in the banking industry appears to be on the rise at 11.3 per cent.

First quarter

He said the ratio moved from 10.4 per cent recorded in first quarter of 2019 – which is much higher than the 5-year average of 8.3 per cent.

“The tough economic conditions have increased the cash constraint on businesses as well as households.

Most businesses are struggling to keep afloat due to subdued revenues and they may not be able to meet their repayment requirements further elevating credit risks,” Kingoo said.

Equity Group remained in fourth position with a total score of 27 while Diamond Trust Bank remained in fifth position with a weighted score of 27.4. It was, however, ranked top in future growth opportunity perspective.