NIC Bank released their 3Q18 results this morning before market open. EPS came in at KES 4.56 (-13% y/y) against our estimate of KES 4.24, 7% above our forecasts. Noteworthy, loan loss provisions and effective tax were lower than expected.

Key Highlights

  • EPS: -13% y/y to KES 4.56; adjusting for new bonus shares in 2018 y/y change is -3.4% from adjusted 3Q17 EPS of KES 4.72.
  • Net interest income: -5% y/y to KES 7.6bn, lower than expectations.
  • Non-funded income: +7% y/y to KES 3.4bn, in line with expectations.
  • Operating costs: +8% y/y to KES 5.0bn, in line with expectations.
  • Loan loss provision: -25% y/y to KES 1.6bn, significantly lower than expectations.
  • PBT: -2% y/y to KES 4.3bn, in line with expectations.
  • PAT: -3% y/y to KES 3.2bn.
  • Annualized RoE: -80bps y/y to 15.0%.
  • Annualized RoA: -30bps y/y to 2.4%.
  • Customer Deposits: +10% y/y to KES 145bn.
  • Loan book: -3% y/y to KES 115bn.
  • GNPLs: +12% y/y (+1% ytd) to KES 16.4bn, NPL ratio of c. 12.5%.

What Stood Out For Us

  • In 2018, on a q/q basis, the bank has continued to cut down on lending. Earlier, management stated that they would focus more on loan recoveries. Despite declining cost of deposits, interest expenses grew 22% y/y, reflecting the expensive deposits they picked up in 2017.

Impact on Investment Thesis

  • We expect to slightly reduce our deposit growth estimates and NIMs given the decline in loan yields.
  • Incorporating the changes, our FV could slightly adjust downwards from the current KES 28.34.

Credit: Kestrel Research

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