Diamond Trust Bank Kenya Ltd. is Nairobi’s worst-performing banking stock year-to-date, with sentiment clouded by rising bad debts as many of its peers post signs of recovery from the ravages of the pandemic.
Asset quality is a concern for the lender, after bad debt provisions increased 24% in the first six months of the year, even as Kenyan peers cut the amount set aside to cover non-performing loans, according to Churchill Ogutu, head of research at Nairobi-based Genghis Capital.
“Provisioning will be elevated compared to peers which could eat into their profitability,” Ogutu said by phone. The outlook for Diamond Trust should improve if there is a rebound in the tourism, trade and real estate sectors, which account for most of its lending, he said.
More broadly, Kenyan banks should continue to post strong growth for the remainder of the year, raising the prospect of a resumption in dividends, according to Nairobi-based Dyer & Blair Investment Bank Ltd.
The period following Kenyan banks’ third-quarter reports might provide an entry point for investors to “position themselves in order to reap from dividends and possible capital gains ahead of the full-year results,” the investment bank said in an emailed note.