February 5, 2019/InvestmentOne Report

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·         Still riding on the theme of our H2 2018 Banking Sector Outlook “Still in focus – Cost of Risk”, we remain slightly positive on our outlook for the banking sector in 2019, largely on the back of our stance on elevated interest rates into at least H1 2019. 

·         We also spotlight the opportunities that lie within the digital banking space. As we have seen in recent times, the apex bank in collaboration with lenders have become increasingly innovative in pursing financial inclusion in a bid to drive improve outreach by 20% by 2020 from the current abysmal levels. 

·         However, we pinpoint a possible hiccup in the income generated from this strategy. In September 2018, the apex bank proposed granting Payment Service Banking (PSB) licenses to telcos, also in its bid to drive financial inclusion. The goal is for PSBs to reach out to the unbanked 60 million citizens who possess a mobile phone but no bank account. 

·         Looking at banking sector performance in the local bourse, despite losing 16.09% in 2018 (vs NSEASI – down 17.81%), it was apparent banking names remained the cherry in the eyes of most investors as it accounted for 44% and 51% of daily volume and value traded in 2018. 

·         We Finally, our outlook still remains skewed towards Tier 1 banking names given their lower cost of risk, higher liquidity and capital   adequacy ratios (CAR), compared to Tier 2 players and their apparent ability to ride out the storm ahead.