Kenya’s weaker-than-expected economic growth, election fears and interest rate controls have started impacting corporate earnings, with some listed financial service providers recording declines in earnings per share, effectively eroding dividends to shareholders.

The Nairobi Securities Exchange-listed companies have started releasing their financial performance figures for the year 2016, which saw banking stocks suffer their worst fall in years after the government imposed controls on lending and deposit rates.

The Central Bank of Kenya had  cautioned that   the poor performance of listed firms would spill over into 2017 due to uncertainty related to the August 8 general election.

“Domestically, the election cycle generally impacts financial stability and growth prospects, especially if results are contested. This coupled with geopolitical and macroeconomic instability in some East African countries where Kenya’s financial institutions operate and the trade links are strong is more likely to be a source of vulnerabilities going forward,” said CBK.

In its  Financial Sector Stability report dated August 2016, the Bank said that the 2017  general  election is likely to see investors  adopt a “wait and  see” stance towards any new investments or expansion.

Stockmarket

“As a result, the stockmarket is likely to record further depressed activity,” said the CBK.

So far, only Barclays Bank of Kenya (BBK) and Stanbic Kenya Holdings have  made public their full-year financial statements for the year 2016, declaring reductions in profit margins and in earnings per share (EPS).

Barclays’ net profit declined 12 per cent to Ksh7.39 billion ($73.9 million) from the previous year’s Ksh8.4 billion ($84 million), while its EPS fell 12 per cent to Ksh1.36 ($0.01) from Ksh1.55 ($0.02).

Stanbic Holdings Kenya posted a  10 per cent  drop in net profits to Ksh4.41 billion ($44.1 million)  from Ksh4.9 billion ($49 million)  while its EPS dropped 10 per cent  to Ksh11.18 ($0.11)  from Ksh12.41 ($0.12).

Dividends per share also fell by 15 per cent, to Ksh5.25 ($0.05) from Ksh6.15 ($0.06).

Stanbic Bank chief executive Philip Odera said increased regulation in the banking sector together with a bearish stock market   impacted the Group’s performance.

“Growth in impairment charges due to increased general debt provisions aligned to a challenging operating environment also affected our bottom line,” he said.

Analysts at the UK-based Exotix Partners LLP said the earnings for Stanbic Kenya Holdings were partially impacted by interest rate caps.

“We currently have a ‘Hold’ recommendation on Stanbic Kenya Holdings with a target price of Ksh 65.6 ($0.65) giving an expected total return of 8.7 per cent at the current market of Ksh67 ($0.67) price (February 24),” said Exotix.

Analysts at AIB Capital said  Barclays Bank’s  results were characterised by better- than-expected balance sheet growth and a lower -than- expected  growth in earnings.

Profit warning

On the other hand, insurer Sanlam Kenya, formerly Pan Africa Insurance Holdings rescinded a profit warning it had issued last year to the effect that its earnings would fall by at least 25 per cent.

The firm said that the withdrawal of the profit warning was due to a new regulatory requirement on the treatment of long-term liabilities whose impact on earnings the management had over-estimated.

“We thought the new method of valuing life business would have been more severe than it turned out to be. We were quick in issuing a profit warning,” said Sanlam Kenya, chief executive Mugo Kibati.

The insurer’s net profit for the year ended December 31 2016 increased to Ksh70.62 million ($706,200) from the previous year’s Ksh27.35 million ($273,500) but EPS increased marginally from Ksh0.43 ($0.004) to Ksh0.63 ($0.006).

According to CBK, the insurance industry faces shrinking underwriting margins and increased fraud cases, though  the rise in capitalisation requirements could encourage mergers and acquisitions and  enhance the sector’s growth.

The financial sector’s profitability prospects remain subdued in an environment of faltering  economic growth and low  interest rates. On a quarter-by-quarter basis Kenya’s financial sector recorded declines in growth rate throughout the nine months to September 30  last year, according to data from the Kenya National Bureau of Statistics.

For example, the financial and insurance sector recorded a growth of eight per cent in the first quarter (January-March) of 2016 compared with a growth of 10.6 per cent registered in the same period in 2015.

During the second quarter, the sector recorded a growth of 7.5 per cent compared with a growth rate  of 7.7 per cent in  the same  period  in  2015, and  in the  third quarter the  sector recorded a growth of 6.1 per cent compared with a growth of 10.3 per cent in the same period in 2015.

The  economy on the other hand  slowed down in the third quarter of 2016, growing at a rate of 5.7 per cent compared with 6 per cent in the same period in 2015.