Nigerian rating agency targets Kenyan banks

Central Bank of Kenya in Nairobi. CBK wants banks to raise capital buffers by up to 2.5 per cent of deposits. FILE 

By John Gachiri

Newly licensed Nigerian credit rating agency Agusto & Co is targeting Kenyan banks as its major clients, a senior manager of the firm has said.

The Lagos-based firm which in February became the second credit rating agency licensed by the Capital Markets Authority (CMA) says Kenya’s steady economic growth would increase the number of firms seeking to raise money, hence growing demand for its services.

South African company Global Credit Rating (GCR) is the only other firm licensed by CMA to assess creditworthiness of firms seeking to borrow or raise capital in Kenya.

Agusto & Co senior manager Abisodun Soetan said the relatively small asset and capital base of Kenyan firms means they will require a lot of fund raising.

“There are opportunities in the banking sector as Kenyan banks migrate towards full implementation of the Basel II and Basel III capital accords,” said Mr Soetan in an interview.

“We believe there are opportunities in the corporate debt markets, where credit ratings should improve investor confidence, encourage new funding as well as increase liquidity and trading in the secondary market,” he added.

The Basel accords are a set of guidelines meant to strengthen banks’ capital adequacy ratios, quality of assets and risk management.

Kenyan banks are currently implementing some elements of Basel II, which address the quality of assets on a bank’s books in addition to capital adequacy.


Basel II, for example, looks at whether a loan is secured by cash or land.

The former is of a higher quality over the latter due to the ease with which the security can be liquidated in case of default. Chief executive of the industry lobby Kenya Bankers Association, Habil Olaka, said Kenyan lenders are implementing “rules such as buffer capital where a bank is supposed to create and build over time,”

(Read: Credit rating bureaus target EAC expansion)

In June the Central Bank of Kenya (CBK), the industry regulator, required banks to raise their capital buffers by up to 2.5 per cent of their deposits by the end of this year. This is meant to improve their stability in during economic shocks.

Rating agencies will be expected to assess banks’ strength as borrowers and also the quality of the securities they issue such as a bonds. Kenyan banks are increasingly going to foreign markets to source for capital and have also expanded across borders, which require them to be credit rated.

“To elbow your way with other players you need a way to be compared and that is through a rating agency,” said Mr Olaka.

Equity Bank has already received a rating from GCR ahead of its planned borrowing. GCR assigned Equity Bank with an AA- rating or a stable outlook. KCB is also looking for a rating. The higher the rating the lower the borrowing cost for the issuer.

Analysts said that as the economy picks up banks will have to increase their capital, either by going to shareholders to add more money through rights issues or issuing bonds, either locally or internationally.