A Cooperative Bank branch in Nairobi. FILE PHOTO | NMG Uncertainty over Co-operative Bank’s #ticker:COOP growth prospects has prompted a stocks downgrade amid escalating Covid-19 pandemic and planned purchase of troubled Jamii Bora Bank (JBB).
Analysts at Renaissance Capital (RenCap) have revised their view of the lender’s growth prospects downscaling the stock from ‘buy’ to ‘hold’ with a target price of Sh13.1 per share compared to earlier projections of Sh21.4 per share.
Monday the bank’s stock at the bourse was trading at Sh12.30 at around 12:15pm having dropped by 0.81 percent.
According to the assessment report released last week, the growth prospects for the country’s fourth largest bank by assets faces a myriad of impediments, including its proposed acquisition of Jamii Bora, which some analysts believe may not necessarily add value to Co-op’s dwindling fortunes.
In November last year Renaissance assumed the lender will not be involved in any activities relating to mergers or acquisition this year, a move which could have preserved its earnings.
According to analysts at AIB Capital, the acquisition of JBB is unlikely to improve Co-op Bank’s balance sheet.
“We don’t think the acquisition will add much to Co-op’s balance sheet,” said AIB Capital.
The turmoil in the financial sector as a result of the Coronavirus is expected to lead to an increase in the volume of non-performing loans (NPLs) and a drop in banking transactions as people stay at home due to measures imposed by the government to deal with the global pandemic.
As a result the bank’s interest and non-interest (non-funded) income is expected to come under intense pressure
In November last year (2019), Renaissance had placed Co-op’s stock in ‘buy’ category alongside KCB and Equity bank on grounds that its net interest margin (NIM) will improve by 50-60 basis points per year over the next three years, with credit growth improving to 15-16 per cent in the same period.
The analysts also assumed that the lender’s return on equity (ROE) will increase to between 20-25 percent per annum over the next three years and that the lender will not be involved in any merger or acquisition.