NCBA Group

NCBA is at a turning point

Our clients can request the full report with our analyst’s rating, target price, and full-year (FY) 2023 – 2027 forecasts. Following the merger of NIC Group and Commercial Bank of Africa (CBA) in Oct 2019, NCBA became the third largest bank in Kenya with a 9.3% market share (FY 2022). The bank operates across Kenya, Tanzania, Uganda, and Rwanda, with exposure in Ivory Coast through a mobile lending platform. We believe NCBA is at a turning point after raising its lending appetite from 3Q22, following three years of subdued loan growth, spinning off its digital-banking subsidiary to expand mobile lending and payment outside East Africa, and expanding its distribution network to grow its retail banking.

Building a niche digital-banking franchise

Through its mobile network operators (MNOs) partnerships, NCBA underwrites mobile micro loans. The bank’s digital-lending portfolio has grown at a 29% compound average growth rate (CAGR) (FY 2019- 2022), with annual disbursements reaching Kes 729 billion (2.5x its traditional lending portfolio) in FY22. Safaricom’s overdraft facility, Fuliza, contributed 86% of NCBA’s digital loan portfolio. With penetration levels of NCBA’s key household micro loan products (Fuliza and M-Shwari) at 25% and 16%, respectively, we believe there is room for growth. The digital-banking subsidiary’s contribution to the group’s total income and profit before tax (PBT) stood at 17.3% and 22.5%, respectively, in FY 2022.

Traditional banking earnings also starting to increase

Post-merger, NCBA’s loan growth trailed the sector at 3.1% vs 10.9% CAGR (FY19-FY22). We believe this was driven by a decision to de-risk the balance sheet as the corporate segment’s non-performing loan (NPL) ratio reached a high of 17.1% in FY21. Through a combination of write-offs and recoveries, NCBA’s asset quality has strengthened, and we expect lending to increase. Earnings growth will be further supported by margin expansion, normalization of risk charges, and improving cost efficiency.