Fitch Ratings – London – 06 Jul 2020: Fitch Ratings has revised the Outlook on KCB Bank Kenya Limited’s Long-Term IDR of ‘B+’ and National Long-Term Rating of ‘AA(ken)’ to Negative from Stable. The rating action follows a revision of Kenya’s Outlook to Negative from Stable in June 2020 (see: Fitch Revises Kenya’s Outlook to Negative; Affirms at ‘B+’, available on www.fitchratings.com ).
Fitch has affirmed KCB Group PLC’s Long-Term IDR of ‘B+’ and National Long-Term Rating of ‘AA(ken)’ and maintained the Negative Outlook on these ratings. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS
ISSUER DEFAULT RATINGS AND VIABILITY RATINGS
KCB Group’s and KCB Bank’s IDRs and National Ratings are driven by their standalone creditworthiness, as expressed by their Viability Ratings (VR). KCB Bank’s IDRs and National Ratings are underpinned by a limited probability of sovereign support, if required. The Negative Outlook on the Long-Term IDRs reflects expected pressure on KCB Group’s and KCB Bank’s creditworthiness stemming from the economic impact of the coronavirus pandemic and the resulting financial profile impact.
Given that KCB Bank represents the dominant part of KCB Group (75% of total assets at end-2019), and in order to capture group-related risks, its VR is based on a consolidated assessment of the group. The VR reflects a challenging operating environment and weak asset quality, balanced against a leading domestic franchise and strong profitability, capitalisation, and funding and liquidity. KCB Group’s VR is equalised with the consolidated risk assessment of the group given low double leverage at the holding company level, as well as high capital and liquidity fungibility within the group.
Fitch forecasts Kenya’s GDP growth to slow to 1% in 2020, followed by 4% growth in 2021, but with material downside risk for 2020 growth depending on the extent and duration of the coronavirus pandemic and the consequent lockdown measures. The economic fallout from the pandemic will cause a shock to Kenya’s near-term growth with negative implications for corporate balance sheets and households’ financial standing and, ultimately, for the banking sector’s asset quality and profitability metrics. In addition, loans to the agricultural and trade sectors are expected to weaken further due to an unprecedented locust invasion, which has been ongoing since early 2020.
KCB Group is the largest banking group in east Africa and commands leading market shares of loans (17%) and customer deposits (15%) in its core market of Kenya […]