July 17, 2024

Why You Should Have These 6 Banking Stocks in Your Portfolio in 2024


Local financial analysts have issued buy recommendations for six prominent banking stocks in Kenya, signaling potential investment opportunities. The highlighted institutions include absa bank kenya, co-operative bank of kenya, equity group, dtb group, ncba group, and i&m group.

Renowned for their market presence and diverse service offerings, these banks are expected to be key players in the evolving financial landscape.

The analysts emphasize the significance of constructing a resilient investment portfolio in 2024, citing factors such as potential returns, diversification benefits, and the ability to withstand economic fluctuations.

The defensive nature of the banking sector is underscored as a stabilizing factor during market uncertainties. Additionally, the allure of dividend income and capital appreciation adds appeal to these stocks.

Absa Bank Kenya (NASE:ABSA) emerges as an attractive prospect with its enticingly low price-to-earnings ratio (3.9x), notably lower than the market average of 5x. Furthermore, the bank has witnessed an impressive earnings growth of 21.2% over the past year. 

Furthermore, absa bank kenya ascended to the position of the most traded stock on the nairobi securities exchange (nse) in Q3 2023, attributed to enhanced management and earning quality. Analysts are therefore optimistic, predicting a substantial 26.3% rise in the stock price

Co-operative Bank of Kenya (COOP) presents a compelling case with a favorable price-to-earnings ratio of 2.9x, below the market average of 5x.

The bank anticipates strong revenue growth of 18.44% per year, consistent earnings growth at 14.3% annually over the past five years, and an impressive dividend yield of 13.39%, surpassing peers in the bottom 25% of dividend payers in the Kenyan market. 

Analysts are bullish on COOP, projecting a noteworthy 36.6% increase in its stock price, supported by an outperform rating and increased target price projections.

Equity Group introduces a unique proposition by facilitating no-cost trading for individuals and corporate clients in shares listed on the nse, adding to its attractiveness in the market.

Diamond Trust Bank (DTB Group) positions itself favorably with plans to increase dividend payouts and expand its network by adding 35–40 new branches by 2024.

As the 31st most traded stock on the nse over the past three months, dtb group boasts an appealing dividend yield of 11.17%.

NCBA Group secures its position as the 17th most traded stock on the nse, emphasizing its active market presence and potential investment appeal.

I&M Group exhibits resilience, closing at 17.50 KES per share on the nse as of January 8, 2024, marking a 10.76% increase from its 52-week low set on May 26, 2023. This upward trajectory signals positive momentum for i&m group in the market.

The optimistic outlook in banking stocks is driven by a decline in short-term interest rates, creating a favorable environment for the sector. Lower rates stimulate increased demand for loans, as borrowing becomes more attractive to businesses and individuals.

This positive market trend positions banks to benefit from a heightened volume of loan transactions, contributing to overall financial growth. 

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The economic outlook for Kenya in 2024 is optimistic, with the World Bank forecasting a growth rate of 5.2%, an increase from its previous estimate of 5%. The Kenya Economic Update (KEU) aligns with this positivity, projecting a real GDP growth ranging between 4.5–5.2% for the same period.

The banking sector is intricately linked to these broader economic trends, poised to benefit from the anticipated growth. As the economy expands, there is an expected surge in demand for financial services offered by banks, such as loans and investments.

The positive economic indicators create a conducive environment for financial institutions to broaden their services and support various economic sectors.

While the banking sector in Kenya offers opportunities, it is still accompanied by inherent risks. To ensure a balanced portfolio, a comparative risk analysis is essential.

This involves evaluating the risk-return profiles of banking stocks against other asset classes like bonds, real estate, and diversified funds. 

Each asset class presents its unique risks and rewards. Investors should consider their risk tolerance, investment goals, and market conditions to construct a well-diversified portfolio that can manage uncertainties effectively.

Balancing the risks associated with banking stocks through diversified investments enhances the potential for stable returns over the long term.