Banking stocks came under a heavy battering at the Nairobi Securities Exchange (NSE) as investors assessed their positions in the sector following Wednesday’s signing into law of a new Bill capping interest rates. Stock market data showed the cap was only removed for DTB, which released its six-month results yesterday.
Nervous investors scrambled to sell more than 100 million shares to mostly non-existent buyers, causing market prices to tank, starting with the top three banks whose share price erosion touched the allowed maximum of 10 per cent. Equity Bank topped the list of losers, having shed Sh12.26 billion or 9.0 per cent, followed by KCB Group’s Sh9.96 billion or 9.9 per cent and Cooperative Bank’s Sh6.36 billion or 9.8 per cent.
Some analysts argued that the market regulators should have considered the signing of the new law capping interest rates a material development for banks and lifted the cap on share price changes at the bourse. “The interpretation is that this was a material development for banks and the 10 per cent cap on prices ought to have been lifted,” said Eric Musau, a senior research analyst at Standard Investment Bank.
Mr Musau said that the change in the law was not exactly a disaster for commercial banks, noting that there was a likelihood of an overreaction without the regulator’s intervention.
Vimal Shah, the head of research at Burbidge Capital, said the change in law was a material development that was of great concern to investors.
The analysts said they expect the battering of bank stocks to continue in the coming weeks as investors assess the full import of the changing market conditions.
Trading data showed that very few investors were ready to buy bank stocks at yesterday’s prices, raising the likelihood that the race to the bottom would persist.
Data from Rich Management, a data vending and advisory firm, showed that sellers outstripped buyers by a large margin, tipping the scales in favour of price erosion. Equity Bank, for instance, had 54.8 million shares on offer against a demand of 3,000 shares — an imbalance that saw the share price fall to Sh32.75 from Sh36 the previous session.
KCB had 52.5 million shares on offer against demand of 7,000 shares or nearly 8000 times less, raising the prospect of buyers waiting on the wings to enter a lower price. Cooperative Bank owners placed 9.3 million shares on sale against a demand of 7,000.
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Barclays Bank of Kenya had 258,000 shares on offer against a demand of 42,000 while I&M supplied the market with 223,400 shares against a demand of 70,000.
National Bank of Kenya was, however, only marginally affected, losing Sh61.6 million yesterday or 2.8 per cent of its market value. DTB lost 10.7 per cent, after it released its results, making it the biggest loser of the day. The loss amounted to Sh4.5 billion in market capitalisation.
Bankers said at a press briefing that they would wait for guidelines on the new law before taking any action. Of the many questions begging for clear answers under the new dispensation is whether the interest rate caps apply to microfinance institutions.
Many analysts also argued that there was need to specify which accounts qualify for deposit rate compensation.
Mr Musau said he expects big banks to suffer the least damage under the new law given their ability to push large volumes of credit while keeping deposit costs in check.
Will banks continue making profit?
“The big banks have sufficient capital so they don’t need to borrow for their balance sheet needs,” Mr Musau said, adding that the small banks may have a problem especially those that are dependent on debt capital.
Former Gem MP Joe Donde, who first introduced the Bill to control interest rates in a liberalised economy, said banks were likely to continue making good profits as they did in the pre-1991 era when lending prices were controlled.
“At the time of controls, people would borrow and buy houses in Nairobi quite comfortably. My father bought a house in Buru Buru in those days of controls but banks were still making profits. Even with implementation of the new law they will continue to make profits,” said Mr Donde on the phone.
Non-banking stocks also lost value, pushing down the total market cap to Sh2.0 trillion compared to Sh2.1 trillion the previous day.
Bearish slope
Telecoms operator Safaricom was the major contributor to the loss having shed Sh1.25 a share or more than Sh40 billion in market capitalisation. Banks and Safaricom put together lost Sh87 billion out of the Sh106 billion value lost on the NSE in a single day.
The Nairobi Securities Exchange (NSE) slid further down the bearish slope that wiped out a total of Sh106 billion in investor wealth, nearly half of it from bank stocks. The 11 listed commercial banks lost Sh47 billion in just one day, and traders said further losses may have been prevented by the rule that stops stocks from losing more than 10 per cent of their value in a single day unless the regulators have decided that material change affecting a particular stock has occurred to warrant lifting the rule.
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