Earnings Report /

Kenya Commercial Bank: FY 19: Good performance, results slightly above expected

  • Mobile lending platform boost non-interest revenue with non-branch revenue rising 126% yoy to KES12bn

  • As expected, NBK inclusion results in higher NPLs, higher costs and lower cost of funds

  • Reiterate Buy, TP KES54.00 on higher margins and loan book growth outlook

Faith Mwangi
Faith Mwangi

Equity Research Analyst, Financials (East Africa)

Tellimer Research
13 March 2020
Published byTellimer Research

KCB Group released its FY 19 results marking a 5% yoy increase in attributable income to KES25.16bn, which was slightly above our expectations. This was the first full-year results where National Bank of Kenya (NBK) was included and as expected, it led to higher costs, weaker asset quality and lower cost of funds. Management is, however, upbeat on the bank's 2020 outlook, targeting a reduction in NBK’s NPL ratio to 25% from 43%. Management hopes this will bring down KCB group's overall NPL ratio to 8.0% from 12.0% . Non-interest revenue continued to see strong growth by 22%yoy from the use of alternative channels such as the mobile lending platform delivering income from loan issuance. 

KCB is trading at a 2020f PB of 0.9X and PE of 5.4x. Considering the FY 19 ROE of 20.7%, and our outlook of higher margins and higher loan book growth, we see the current pricing as an attractive entry point. However, with the ongoing coronavirus (Covid-19) pandemic and the recent confirmation of Kenya’s first case, we expect the price to weaken. 


  • Uganda business has been a challenge with two large customers facing delayed payments. However, management expects a turnaround in 2020.
  • For FY 20, management expects loan book growth and deposit growth of 14% yoy with key target areas including personal loans segment, manufacturing and trade. 
  • Management is targeting FY 20 non-funded income growth at 25% yoy on the back of income growth from alternative channels. Management also mentioned that new products in the pipeline are already performing well, but expect growth in 2020 to slow down after coming off an initial high base in 2019. 
  • Net interest margin target at 7.8%.
  • Management intends to reduce NPL ratio to 8.0% with cost of risk set at 1.8%.


  • Non-funded income grew 22% yoy (+20% excluding NBK) to 25.16bn. Management is targeting a 40% contribution to total income from non-interest income. 
  • 126% yoy growth in non-branch revenue with 97% of transactions taking place off-branch. New mobile lending platform launched in 2018 contributed to strong revenue growth from the 290% yoy growth in total mobile loans advanced. Mobile transactions (B2C and B2B) remain the most popular. Agencies recorded a 7% rise in transactions with cash deposit and withdrawal the most popular form of transaction. 
  • Loans grew 17.4% yoy, driven by corporate +25% yoy, retail +13% yoy and mortgage +7% yoy. Sector-wise, personal loans grew 68% yoy (driven by mobile lending where the bank is lending an average of KES10bn per month and repayment rates standing at 96% of loans issued), tourism +57% yoy (this is expected to slow down in 2020 following the coronavirus pandemic, which has resulted in restricted travel) and manufacturing +27% yoy. 
  • Deposits grew 28% yoy (+11% yoy excluding NBK). This was driven by Corporate (+33% yoy), retail (+23%yoy) and mortgage (+17% yoy). Key benefit from NBK is reduced cost of funds and access to government deposits. Cost of funds dropped 40bps.
  • PBT grew 9% yoy (+5% yoy excluding NPL) and PAT growth was 4.9% yoy (flat excluding NBK). 


  • NPL ratio at 12.0%. NBK's Q4 19 NPL ratio was 43.0%, a notable reduction from the 50.0% since the acquisition. KCB's NPL ratio was 7.4% excluding NBK, with mobile lending NPLs starting to pick up. SME loans NPL was 14.4%, corporate 8.6%, mortgage 7.4%. IFRS 9 coverage ratio increased to 72% with management targeting above 80%. We are happy with the management’s target and expect the target cost of risk of 1.8% to push coverage ratio to the 80% level. 
  • Loan loss provision increased 207% yoy. 
  • Cost of risk at 1.8% with management targeting similar levels in 2020, but still expects lower NPL ratio.
  • 10% yoy increase in operating expenses (+5.1% yoy excluding NBK). The implementation of IFRS 9 increased depreciation expenses, but NBK contributed an additional KES1.1bn in Q4 19.
  • The tax rate was higher from deferred tax arising from the IFRS 9 implementation in 2018 – we expect this to be reflected in the medium term as management opted to spread out the impact.


Management is concerned about the coronavirus pandemic as delays in imports have already started. Management expects some cashflow strain especially from SMEs in the trade sector. At present, Kenya has confirmed its first case of Covid-19.