Listed Commercial Review Cytonn FY’2020 Banking Sector Report “Subdued Growth in Earnings Amidst Deteriorating Asset Quality”

16th April, 2021 Table of Contents

1 Introduction to Cytonn 4 Listed Banking Sector Metrics

2 Kenya Economic Review and Outlook 5 Valuation Reports

3 Banking Sector Overview 6 Appendix

www.cytonn.com 2 I. Introduction to Cytonn

3 About Us

Cytonn Investments is an alternative investment manager, with real estate development capability, and a primary focus on private equity and real estate investments in the high growth Kenyan Region. Cytonn has a unique strategy of coupling two compelling demand areas - the lack of high yielding investment products and the lack of institutional grade real estate. We provide high yielding investment instruments to attract funding from investors, and we deploy that funding to largely pre- sold investment grade real estate. With offices in Kenya and Washington, DC - USA, we are primarily focused on offering alternative investment solutions to global and local institutional investors, individual high net-worth investors, and diaspora investors interested in the East-African region. Real estate investments are made through our development affiliate, Cytonn Real Estate, where we currently have over Kshs. 82 billion (USD 820 mn) of projects under mandate across ten projects. In private equity, we invest in banking, education, and hospitality.

Over Kshs. 82 Three offices across 2 Over 500 staff 10 investment billion worth of continents members, including readyprojects in 82 projects under 3 500 Cytonn Distribution 10 real estate mandate

A unique franchise differentiated by:

Independence & Investor Alternative Investments Focus StrongAlignment CommittedPartners Specialized focus on Focused on serving the Every staff member is an Strong global and local alternative assets - interest of clients, which is ownerin the firm. When partnerships in financing, Real Estate, Private best done on an clients do well, the firm does land and Cytonn Real Equity, and Structured independent platform to well; and when thefirm does Estate, our development Solutions minimize conflicts of interest well, staff do well affiliate

www.cytonn.com 4 Why We Exist

Africa presents an attractive investment opportunity for investors seeking attractive and long-term returns. Despite the alternative markets in Africa having high and stable returns, only a few institutional players serve the market. Cytonn is focused on delivering higher returns in the alternative markets, while providing the best client service and always protecting our clients’ interests.

WE SERVE THREE MAIN CLIENT SEGMENTS: WE INVEST OUR CLIENT FUNDS IN:

● Real Estate, and Real Estate Related Businesses ● High Net-worth Individuals through Cytonn Private Wealth. This is done through our captive Distribution Network ● Private Equity ● East Africans in the Diaspora through Cytonn Diaspora ● Fixed Income Structured Solutions ● Global and Local Institutional Clients. These clients are served from our ● Equities Structured Solutions Investment & Fundraising Team

We invest them in We deliver the We collect funds high growth best possible from ourclients opportunities returns

www.cytonn.com 5 Our Business Structure

Cytonn Investments Management Plc

Cytonn Asset Managers Cytonn Capital Partners Cytonn (Regulated by (Private Markets) Real Estate Other Strategic Initiatives CMA & RBA)

Private Offers and Real Estate Unit Trust Funds Research and Deal Origination Cytonn Distribution Investments

East African Forum for Cytonn Hospitality Cytonn Africa Financial Fund Project Management Alternative Investments

Superior Homes Kenya Cytonn Advisory Quality Assurance/ Control

Pension Fund Management Cytonn Procurement - Cymatt

Cytonn Real Estate Legal

Cytonn Properties

Cytonn Centre for Affordable Housing

www.cytonn.com 6 II. Kenya Economic Review and Outlook

7 The economic growth expected to remain slow in 2021

Q3'2020 GDP Sectorial Contribution Kenya GDP Growth rate 8.0% Education 4.1% 6.3% 5.7% 5.9% Information and Communication 4.2% 6.0% 5.4% 4.9% 5.4% 4.9% Construction 6.8% 4.0% Financial & Insurance 6.8% Transport and Storage 7.8% 2.0% -1.1% Wholesale and retail trade 8.6% 0.0% Real estate 9.0% 2014 2015 2016 2017 2018 2019 Q1' 20 Q2' 20 Q3' 20 Manufacturing 9.4% -2.0% Taxes on Products 11.4% -4.0% Agriculture and Forestry 19.5% -6.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% -5.7% -8.0%

• According to Kenya National Bureau of Statistics (KNBS), the Kenyan economy recorded a 1.1% contraction in Q3’2020, down from a growth of 5.8% recorded in Q3’2019. This was the second consecutive contraction, following the 5.7% contraction recorded in Q2’2020 • We expect the growth rate to be slower in the coming quarters following the imposition of new restrictions owing to the spread of COVID-19 coupled with the absence of tax incentives issued in 2020

8 Inflation

Inflation averaged 5.3% in Q4’2020, up from 4.3% in Q3’2020

5-Year Inflation Rates 14.0% 11.5% 12.0%

10.0% 5.9% 8.0% 6.3% 6.7% 6.0%

4.0% 5.6% 6.3% 3.8% 2.0%

0.0% 1-Feb-15 1-Jul-15 1-Dec-15 1-May-16 1-Oct-16 1-Mar-17 1-Aug-17 1-Jan-18 1-Jun-18 1-Nov-18 1-Apr-19 1-Sep-19 1-Feb-20 1-Jul-20 1-Dec-20

*Source: KNBS • In Q4’2020, inflation averaged 5.3%, a 1.0% points increase from the 4.3% recorded in Q3’2020. Q1’2021 inflation also increased to an average of 5.8%, while March inflation came in at 5.9%. The rising inflation rate can be attributed to the rising fuel prices since the start of the year • We expect inflation to remain within the government’s range of 2.5%-7.5% despite supply-side disruption due to COVID-19 mainly supported by stable food prices as a result of the current favorable weather conditions

9 Stanbic PMI Index

Kenya PMI Index 65

60 59.1

55 Average - 51.6 50 46.6 50.6 45

40

35 34.4 34.8 30

*Source: Markit Economics PMI Average

• In Q4’2020, the economic prospects of the country deteriorated, with the Stanbic PMI index averaging 53.9, a decline from the 54.5 recorded in Q3’2020. In Q1’2021, the PMI Index also declined, coming in at an average of 51.6 • Key to note, a PMI reading of above 50 indicates improvements in the business environment, while a reading below 50 indicates a worsening outlook. Despite the stronger growth seen in the period under review, the level of sentiments was weak, as firms were concerned that the economy could face a setback from the pandemic

10 Currency

Year-to-date, the has appreciated by 1.9% against the US Dollar 115.0 115.0 Kshs. vs USD 107.1

110.0 110.0 108.2

105.0 105.0 10-yr moving average

100.0 100.0

95.0 95.0

90.0 90.0

Jun-16 Jun-17 Jun-18 Jun-19 Jun-20

Oct-17 Oct-16 Oct-18 Oct-19 Oct-20

Apr-16 Apr-17 Apr-18 Apr-19 Apr-20

Feb-20 Feb-17 Feb-18 Feb-19 Feb-21

Dec-17 Dec-16 Dec-18 Dec-19 Dec-20

Aug-16 Aug-17 Aug-18 Aug-19 Aug-20

Exchange Rate 10 Yr Moving Average

*Source: of Kenya • In Q4’2020, the Kenya shilling depreciated by 0.6%, mainly attributable to the uncertainty in the global economy and also the decline in dollar inflows as trade was impacted. On a YTD basis, the shilling has appreciated by 1.9%, in comparison to the 7.7% depreciation in 2020 • In our view, the shilling will come under pressure due to continued uncertainty globally making people prefer holding dollars and other hard currencies

11 Interest Rates and Monetary Policy

Central Bank Rate (%) Weighted Average Interest Rates (%)

20.0 14.0 12.1 18.0 12.0 16.0 7.0 14.0 10.0 12.0 7.1 10.0 8.0 8.0 6.0 6.0 4.0 4.0 2.0 5.0 2.0 0.0

0.0

Jul-19 Jul-20

Jan-21 Jan-19 Jan-20

Jun-19 Jun-20

Oct-19 Oct-20

28-Feb-14 29-Feb-16 28-Feb-21 29-Feb-12 28-Feb-13 28-Feb-15 28-Feb-17 28-Feb-18 28-Feb-19 29-Feb-20 Feb-19 Apr-19 Feb-20 Apr-20 Feb-21

Sep-20 Sep-19

Dec-19 Dec-20

Aug-19 31-Aug-11 31-Aug-12 31-Aug-13 31-Aug-14 31-Aug-15 31-Aug-16 31-Aug-17 31-Aug-18 31-Aug-19 31-Aug-20 Aug-20

30-Nov-13 30-Nov-11 30-Nov-12 30-Nov-14 30-Nov-15 30-Nov-16 30-Nov-17 30-Nov-18 30-Nov-19 30-Nov-20 Nov-19 Nov-20

Mar-19 Mar-20 Mar-21

31-May-11 31-May-12 31-May-13 31-May-14 31-May-15 31-May-16 31-May-17 31-May-18 31-May-19 31-May-20 May-19 May-20

Central Bank Rate Average Rate Deposit Interest Spread Lending

• During Q4’2020, the Monetary Policy Committee met once and held the both the Central Bank Rate stable at 7.0% and the Cash Reserve ratio remained unchanged at 4.25% • The MPC concluded that the current accommodative monetary policies together with the package of policy measures implemented over the last year have protected the economy from substantial decline and supported vulnerable citizens. As a result of the adoption of the accommodative policy in 2020, commercial banks’ lending rates declined to 11.9% in December 2020 from 12.0% seen in September 2020.

12 Private Sector Credit growth

Private Sector Credit Growth 30.0% 25.8% 25.0%

20.0%

15.0% 8.9% 10.0% Average: 8.0%

2.8% 5.0% 8.4% 1.9% 4.9% 0.0%

*Source: KNBS • In the 12 months to December 2020, growth in private sector credit stood at 8.4%, supported by recovery in demand with the improved economic activity following the easing of COVID-19 containment measures, and the accommodative monetary policy • We expect to see increased caution on lending especially to businesses that rely on imports hence inhibiting private credit sector growth due to the high risk of credit default, with the possibility of heightened Non Performing due to the continuing pandemic and the new restriction measures put in place

13 III. Banking Sector Overview

14 Kenyan Banking Sector Overview

Financial Inclusion in Kenya continues to rise, mainly driven by proliferation of mobile and digital channels • In Kenya there are a total of 38 commercial banks, 1 mortgage company, 13 microfinance banks, 9 representative offices of foreign banks, 74 foreign exchange bureaus, 18 money providers and 3 credit reference bureaus • Financial inclusion in Kenya has continued to rise, with 82.9% of the adult population able to access formal . This has largely been driven by digitization, with Mobile Financial Services (MFS), transfer and lending, rising to be the preferred method to access financial services. According to Central Bank Annual Report 2019/2020, 67.0% of banking transactions were conducted on mobile phones after the onset of the pandemic, compared to 55.0% of transactions before the pandemic

Financial Access

90.0% 79.4%

80.0% 71.4%

70.0% 61.6% 60.0%

50.0%

41.1%

40.8% 36.0%

40.0% 34.4%

32.4%

30.1%

29.2%

27.9% 27.9% 27.7%

30.0% 23.2%

20.5%

17.8% 14.0%

20.0% 13.1%

12.9%

12.5%

12.2%

11.3%

11.0%

9.0%

8.3%

4.9%

3.7%

3.6%

3.5%

3.4% 3.3%

10.0% 3.2%

1.9%

1.7% 1.7%

0.6% 0.0% 0.0% Bank Saccos MFIs Insurance(Inc. NHIF) Pension Mobile Money Informal Group Digital Loans 2006 2009 2013 2016 2019

15 Source: , FinAccess report Kenyan Banking Sector Overview

Kenya still remains overbanked as the number of banks remains relatively high compared to the population

Commercial Banks / Per Population of 10 million People

10.0x 9.0x

8.0x