Fitch Ratings, a global credit rating firm, has downgraded KCB Bank Kenya, NCBA Bank Kenya and I&M Bank and their holding companies to ‘B-‘ from ‘B’ with a stable outlook citing weakened credit profile of the government.
The downgrades follow the August 2nd downgrade of Kenya’s Long-Term IDRs to ‘B-‘ from ‘B’ on high risks to Kenya’s public finances following the withdrawal of the Finance Bill 2024 amid the rising domestic debt costs.The viability ratings reflect the lenders’ high exposure to government securities – KCB Group: 158%; NCBA Group: 197%; I&M Group: 84% – coupled with the high concentration of their operations within Kenya. The global ratings agency has upgraded Stanbic to ‘B’, revising the outlook to stable from negative, affirming the bank’s capacity to service its obligations in case of a sovereign default.“The downgrades of the domestically-owned banks and holding companies are driven by the downgrades of their Viability Ratings to ‘b-‘ from ‘b’, which reflect the issuers’ high sovereign exposure relative to capital and the concentration of their activities in Kenya,” Fitch noted in a statement.
The banks’ high exposure to the domestic economy, including government contractors, SMEs and retail customers partly explains their high impaired loans ratios.
Fitch notes that although the issuers’ strong pre-impairment operating profit and high Fitch core capital ratios are adequately mitigating these risks, this may be insufficient to preserve their solvency in the event of a sovereign default.
Stanbic’s risk averseness and focus on lending to less risky customers in Kenya’s context, including prime local corporates and subsidiaries of multinationals, that have greater resilience to the challenging macroeconomic conditions that would likely accompany a sovereign default.
“Stanbic’s Long-Term IDR is at the level of Kenya’s Country Ceiling of ‘B’, which captures Fitch’s view of transfer and convertibility (T&C) risk within Kenya.” Fitch added in the statement.
Fitch considers that Stanbic may benefit from deposit inflows in the event of a sovereign default due to its reputation as a secure and large foreign-owned franchise.
In July, Moody’s similarly downgraded 3 locally owned banks – Equity, KCB and Co-operative Bank – citing weakened government credit profile with the three lenders highly exposed to government securities.
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