Rating agency paints rosy picture for three lenders

Global ratings agency Moody’s says KCB #ticker:KCB , Equity Bank #ticker:EQTY and Co-operative Bank #ticker:COOP will maintain healthy profits and strong capital buffers locally. This will support credit quality and protect them against risks, the agency said.

Moody’s said in a peer comparison report released yesterday that although the banks face a number of challenges, they have the capacity to weather them.
The report follows the recent assignment of new ratings by Moody’s.

All the banks carry long-term local currency deposit ratings of B1 with a stable outlook on the global scale. Moody’s has introduced some differentiation on the national scale rating, with Equity at Aa1.Ke and Co-operative bank at Aa2.Ke.

READ: Moody’s boosts Equity profile as it assigns B1 deposit rating

ALSO READ: Moody’s accords Co-op and Equity high deposit ratings

“The Kenyan banking system is experiencing a patch of low credit growth and mounting asset quality pressure. Lending rate caps at 14 per cent have exacerbated a slowdown in credit growth that began early last year, after banks tightened lending criteria in response to a spike in nonperforming loans,” said Christos Theofilou, associate vice president at Moody’s.

Moody’s said a severe drought that has driven up food prices combined with reduced investment spending ahead of next month’s General Election, is putting small borrowers in the country under stress. This, the report adds, is creating a challenging environment for Kenya’s largest banks.

The report noted that Equity Bank’s focus on lending to micro businesses and small and medium sized enterprises (SMEs) means it has been worst hit in the current environment.

SMEs account for 55 per cent of its loan book, with micro-lending accounting for a further five per cent of loans.

KCB and Co-operative focus on corporate and low-risk government employees.

According to Moody’s estimates as at March 2017, corporate loans made up 44 per cent of KCB’s loan book with SME and micro lending at just five per cent of total loans.

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