Fitch Ratings – London – 28 Jun 2021: Fitch Ratings has affirmed KCB Group PLC’s Long-Term Issuer Default Rating (IDR) at ‘B+’ with a Negative Outlook. Fitch has also affirmed KCB Bank Kenya Limited’s Long-Term IDR at ‘B+’ with a Negative Outlook. A full list of rating actions is below. KEY RATING DRIVERS
IDRs
KCB Group’s Long-Term IDR is driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of ‘b+’. KCB Bank’s Long-Term IDR is also driven by its standalone creditworthiness, as reflected in its ‘b+’ VR, but is underpinned by a limited probability of sovereign support at this rating level, as reflected in its ‘B+’ Support Rating Floor (SRF).
The Negative Outlooks on both entities’ Long-Term IDRs mirror the Negative Outlook on Kenya’s ‘B+’ Long-Term IDR. This reflects the concentration of their operations within Kenya and significant sovereign exposure, which means their credit profiles are highly sensitive to adverse changes in the sovereign credit profile.
VRs
KCB Bank represents the majority (76% of total assets at end-3M21) of KCB Group. In order to capture intragroup risks, its VR is based on a consolidated assessment of the group. Its VR balances a challenging operating environment and weak asset quality against a leading franchise, strong profitability and capitalisation and a stable funding profile. KCB Group’s VR is equalised with the consolidated assessment of the group, given low double leverage at holding company level, as well as high capital and liquidity fungibility within the group.
Operating conditions in Kenya are stabilising, although the Outlook on the sovereign is Negative. The government has cleared significant amounts of arrears, and real GDP growth is forecast to accelerate to 5.5% in 2021 following a slowdown to 1.2% in 2020 (2019: 5.4%) due to the pandemic. Both are expected to reduce pressure on banking sector asset quality and profitability. Economic activity in 2020 was supported by steady growth in the agricultural sector, which benefited from good weather and a reprieve from the ongoing desert locust outbreak.
KCB Group has leading market shares of loans (17%) and customer deposits (15%) in its home market. It has operations in five other countries within the East Africa region. The proposed acquisition of banks in Rwanda and Tanzania – equivalent to a combined 6.4% of KCB Group’s assets at end-2020 – would increase the contribution of its foreign subsidiaries to over 15% of total assets (end-2020: 10%), supporting geographical diversification and its […]
