The Banking sector will drive the Nairobi Securities Exchange market in terms of earnings and dividends over the next five years.
Egyptian investment firm EFG Hermes Holding says banks will grow their loans by up to 19.2 percent in the next five years after the rate cap was removed in November.
The banks will also ride on an 8.4 percent increase in net interest margins by 2023 up from 6.7 percent last year.
Banks (Sh821 billion) and Safaricom (Sh1.262 trillion) make up 84 percent of the Sh2.4 trillion market capitalization making them the main counters attracting money from investors.
Banks have especially gotten traction since the rate cap was lifted with EFG Hermes estimating the return on equity is set to improve from 17.9 percent to 21.6 percent between 2019 to 2024.
Equity Bank rallied from Sh36 in October 2019 to Sh54 this month while KCB rose from Sh41.4 to Sh53.5, Cooperative gained from Sh12 to Sh16.6.
“Despite the recent share price rally, the sector remains attractive from historical (average P/B of 1.7x between FY11-15) and fundamental perspectives (using our average ROE estimate of 21.6%, we estimate a justified P/B of 1.6x),” EFG said.
Other sectors like cement, utilities, energy, and agriculture are currently facing a decline in earnings and attracting less investor appetite.