Kenyan Bank Stocks Plunge Second Day After President Caps Rates

Updated on
  • Market leaders KCB Group, Equity Group slide about 10 percent
  • Bank shares seen extending losses as margins pressured: SIB

Shares of Kenyan banks plummeted for a second day in thin trading after President Uhuru Kenyatta signed off on a law limiting interest charges on loans.

KCB Group Ltd., Kenya’s largest bank by assets, tumbled 10 percent, the most any security is allowed to fall in a session, to 27 shillings. That marked the lowest close in four years with 41,600 shares changing hands, about 1.9 percent of the three-month daily average. Equity Group Holdings Ltd., the market leader in terms of value, slumped 9.9 percent to extend losses over the past two days to 18 percent. It closed at 29.50 shillings, the lowest since March 2013 with less than 0.4 percent of its typical volumes trading.

“Sellers are mostly foreign” investors, Kenny Karanja, an equities trader at Dyer and Blair Investment Bank Ltd., said by phone. “Prices can’t go all the way down to 0. At some point, sellers will reach their price limit, then local investors will start buying in.”

Kenyatta on Wednesday signed into law legislation to peg credit costs at 400 basis points above the benchmark central bank rate. The law also compels financial institutions to pay interest of at least 70 percent of the so-called CBR on deposits.

For an analysis on Kenyatta’s move to cap rates, click here.

“Volumes on banking stocks have completely thinned out,” said Alistair Gould, the chief executive officer of African Alliance Kenya Investment Bank Ltd. The law has “resulted in a lot of investor anxiety and uncertainty as to valuations of the banks. Consequently, would-be buyers have pulled out, while sellers just want out. We are seeing the sector’s stocks re-rating, but it shall settle down soon.”

Kenyan lenders extended loans at a weighted average rate of 18 percent in June, according to the most recent statistics from the central bank, compared with 15.7 percent a year earlier. Meanwhile, the central bank has cut the CBR by 1 percentage point to 10.5 percent this year. It also lowered the Kenya Bankers’ Reference Rate, or KBRR, by 97 basis points.

Three other Kenyan lenders, Co-operative Bank of Kenya, NIC Bank Ltd. and mortgage financier HF Group Ltd. all fell by more than 9 percent. Supply far outstripped demand, said Aly-Khan Satchu, chief executive officer of Rich Management. At one stage 57 million shares of KCB shares were on offer, while bids only amounted to 200 shares.

“The market is pricing in a likely squeeze in net interest margins and return on equity going forward,” Faith Waitherero, an analyst at Standard Investment Bank Ltd., said in a note on Thursday. “We expect further price falls as investors continue to digest the news, and understand the full extent of impact of the new law on earnings.”