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Kenya’s three largest rated banks have stronger cost-to-income ratios than their Nigerian counterparts despite their higher retail overhead costs, Moody’s Investors Service said in a peer comparison report today.
The report compares KCB Bank Kenya Limited, Equity Bank (Kenya) Limited and Co-operative Bank of Kenya Limited with Nigeria’s Access Bank Plc, Zenith Bank Plc and United Bank for Africa Plc.
Kenyan banks’ lower cost-to-income ratios primarily reflect their higher net interest margins derived from their greater exposure to retail clients.
By contrast, Nigerian banks’ lending is focused on lower-margin corporate clients. Additionally, funding cost for Kenyan banks stood 100 basis points lower over the same period, reflecting their wider access to retail deposits.
“Over the coming quarters, we expect Kenyan banks to maintain superior profitability to their Nigerian peers, owing to higher margins, stronger cost-to-income and lower loan-loss provisioning costs,” said Peter Mushangwe, a Moody’s Analyst and the report’s co-author.
Kenyan banks will continue to benefit from their higher NIMs because the recent removal of interest rate caps will support loan yields.
However, Nigerian banks’ cost-to-income ratios will likely improve faster as they increase their higher-margin retail exposure while containing costs as they digitalise their operations and limit branch and staff expansion.
Access Bank recently took over Transnational Bank Ltd. of Kenya after acquiring 97 per cent of Transnational, with plans to inject more equity into the institution to meet the needs of its clients in the east African hub.
“By the end of the second year, we will start to see a return on equity that is close to 20 per cent,”Access Bank’s Chief Executive Officer, Herbert Wigwe, told Bloomberg about Transnational Bank.
The lender also recently acquired a Nigerian rival, Diamond Bank early this year as it sought to expand retail penetration in its home market, with plans on whether to issue a fresh Eurobond before its $300 million debt matures in 2021.
