•The three are Kenya’s largest banks by asset base.
•Majority of commercial lenders in the country have been leveraging on lending to government and disbursing digital loans to grow their non-funded income. Kenya’s new bank notes. KCB, Equity and Coop Bank have been downgraded to a B2 rating due to their large investments in government securities.
"The negative outlook reflects primarily the banks’ sizable holding of sovereign debt securities at between 1.3-2.0 times their shareholders’ equity which links their creditworthiness to that of the government," rating firm Moodys said in a statement.
The three are Kenya’s largest banks by asset base with KCB leading with total assets valued at Sh899 billion from Sh714 billion in 2018 after acquiring the National Bank of Kenya (NBK).
Equity Bank Group is second with a total asset value of Sh638.6 billion followed by Co-op Bank with assets valued at Sh457 billion following the acquisition of Jamii Bora Bank.
According to the ratings agency, all three banks’ local-currency deposit ratings of B2 are at the same rating level with the government, and a potential weakening in the government’s credit profile will lead to a weaker credit profile for the banks.
Majority of commercial lenders in the country have been leveraging on lending to government and disbursing digital loans to grow their non-funded income at the expense of loans to small businesses and individuals.
The agency noted that prolonged disruptions in key sectors could slow down the economy and cause severe problems to banks as customers default on their loans.
This, in addition to the fact that the majority of banks have invested largely in safer government securities, could result in a weaker rating as the coronavirus spread continues.
“Kenyan banks’ ratings could be downgraded if the sovereign rating is downgraded, given the banks’ sizeable holdings of sovereign debt securities, or if Moody’s expects Kenya’s operating environment to weaken or if the banks’ financial metrics weaken materially, beyond the thresholds assumed by the current rating level,” the agency said.
Moody’s had earlier warned that measures put in place to shield Kenya’s banks from disruptions associated with the coronavirus outbreak, might not hold should the situation worsen."To a lesser degree, the negative outlook also captures the higher risks to the banks’ asset quality and profitability over the next 12-18 months, amid the coronavirus-induced economic slowdown," Moody’s said.Last week, the agency revised Kenya’s credit rating downwards to a B2, citing costly loans.Moody’s said the country has massive […]