Kenyan Stocks Fall Most in 4 Years as Bank Seizure Boosts Risks

  • Shares in Kenya Commercial Bank drop to lowest since July 2013
  • Investors seen shifting money from equities into T-bills

Kenyan equities fell the most since August 2011 after the country’s authorities placed a second bank in two months under administration, spurring investor concern about the health of lenders in East Africa’s largest economy.

The FTSE NSE Kenya 25 Index slid 3.5 percent, a fifth day of declines that drove it to the worst closing level since Aug. 27. The losses extend a year of falling valuations as the nation’s tourism industry contracts after a spate of attacks by Islamist militants and as a drought cuts tea crops, weighing on the local currency.

Shares tumbled even as Kenyan regulators said the industry is safe and that the receivership of Imperial Bank Ltd. does not represent a systemic risk. The Central Bank of Kenya announced on Tuesday that Imperial was placed under statutory management because of “inappropriate banking practices,” after similar measures against Dubai Bank Kenya Ltd. in mid-August. The selloff comes amid a drop in emerging markets on Wednesday on renewed anxiety that China’s slowing economy would hurt global growth.

“Perception-wise, it doesn’t paint a nice picture, coming as it does so soon after the collapse of Dubai Bank,” said Kenneth Minjire, an analyst at Genghis Capital Ltd. in Nairobi, the capital. “It doesn’t look good to investors who will be watching the sector, especially foreign investors.”

The index of Kenya’s 25 largest and most liquid shares closed at 176.84 by 3 p.m. in Nairobi as 17 shares fell and five rose. The gauge has tumbled 12 percent since its previous peak on Sept. 16, entering a so-called correction. It has lost the most among 14 African equity indexes tracked by Bloomberg after Zimbabwe.

Kenya Commercial Bank Ltd. dropped to the lowest since July 2013, while Equity Group Holdings Ltd., Kenya’s biggest lender by market value, retreated the most in more than a year with about 24 million shares changing hands, almost 5.2 times the three-month daily average.

Imperial Bonds

Imperial was scheduled to start trading bonds on the Nairobi Stock Exchange on the same day it was seized by regulators. The company had last month offered 2 billion shillings ($19.4 million) of debt maturing in December 2020 to investors, it said on Oct. 2. The lender represents less than 1.8 percent of Kenya’s banking industry and the appointment of managers to oversee the company will be aimed at restoring its safety and soundness, Central Bank of Kenya Governor Patrick Njoroge said in an e-mailed statement on Wednesday.

“There has been a general lack of confidence on banking stocks given the fact that Imperial Bank was supposed to list its 2 billion-shilling bond,” Mwenda Rarama, an analyst at CBA Capital Ltd. in Nairobi, said by phone. “Buyers have disappeared.”

Investor Anxiety

“It’s investor anxiety that’s definitely at play following the closure of Imperial Bank,” said Francis Mwangi, the head of research at Standard Investment Bank Ltd. Investors are shifting funds into Treasury bills, where they can pick up yields of more than 20 percent, he said.

Yields on Treasury bills have surged to their highest levels in more than 3 1/2 years as the central bank attempts to entice foreign investors into buying the securities, attracting dollars into the economy and taking shillings out of the system.

Losses in the banking stocks may be overdone and the drop in some of the larger lenders may present a buying opportunity, Ronak Gadhia, an equity research analyst at Exotix Partners LLP in London, said by phone.

“The bigger banks, which are already reporting some pretty strong numbers, will continue to do so,” he said. “If anything, they might benefit from a flight to quality as skepticism in the Tier 2 banks results in deposits moving to the Tier 1 space.”

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