By KEPHA MUIRURI

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Banking sector stocks in Kenya are tipped to rally on improved earnings and increased dividend prospects ahead of the industry’s full-year reporting season next month.

Listed banking sector stocks lead the way as early 2024 stock picks on the back of a stable full year earnings momentum through the first three quarters of last year.

Research analysts at AIB-AXYS Africa have placed a buy recommendation on six of 11 Nairobi Securities Exchange (NSE) listed banking stocks: Absa Bank Kenya, Co-operative Bank of Kenya, Equity Group, DTB Group, NCBA Group and I&M Group.

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Equity Group's stock price is expected to gather momentum from its regional subsidiaries and digitisation.

“We anticipate the lender’s growth to be driven by fast-growing regional subsidiaries, especially DRC and Rwanda units, as well as insurance cross-selling. We expect digital lending channels to enhance economies of scale and support cost rationalisation,” the analysts stated.

Equity Group is also expected to register growth in interest income from the continued repricing of loans under the new risk-based pricing model and organic credit demand.

I&M’s growth is meanwhile pegged on innovative customer value propositions including unsecured personal lending and waivers of bank-to-mobile transaction fees.

The roll-out of risk-based pricing and widening traction of digital channels is expected to set up Absa Bank Kenya for improved earnings while resilience in asset quality is seen anchoring growth for Cooperative Bank.

On its part, NCBA Group is expected to profit from its sustained leadership in asset finance and accelerated digital uptake supporting cross-lending activities via platforms such as M-Shwari and Fuliza.

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Deteriorating asset quality, rising cost of funds and fading forex trading earnings momentum are however seen as headwinds to the observed momentum of growth for the banking industry stocks.

So far this year, banking sector stocks performance has been a mixed bag with Equity Group Holdings share price rising by 6.2 percent to Ksh35.75 ($0.22) as of Tuesday from Ksh33.65 ($0.21) at the close of 2022.

NCBA Group and Co-op Bank share prices have in the meantime eased by 3.4 percent and 0.4 percent to Sh37.60 ($0.24) and Sh11.35 ($0.07) respectively.

I&M share price meanwhile stands unchanged at Ksh17.50 ($0.11) from the close of 2022.

CIC Insurance Group and Jubilee Holdings make up non-banking stocks with a buy recommendation based on their earnings momentum and growth in long-term insurance respectively.

Jubilee’s stable dividend payment record is also expected to be an attraction to investors.

Standard Chartered Bank Kenya closed last year with the highest dividend yield among bank counters at 13.58 percent.