Global rating agencies give KCB Group stable outlook

Money Markets

Customers wait to be served in a KCB banking hall. PHOTO | SALATON NJAU 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• The stable outlook makes it easier for KCB to raise funds for expansion, the bank’s management said in a statement in reaction to the new ratings.
• Moody’s said the firm uses cheap funding for its business, ensuring its liquidity and leaving it with a large room to make high profits.

KCB Group, Kenya’s largest lender by assets, has a stable outlook with strong ability to raise long-term funds and mobilise deposits, two rating agencies said in separate reports on Monday.

The ratings by Moody’s and Standard & Poor’s (S&P) make it easier for KCB to raise funds for expansion, the bank’s management said in a statement in reaction to the new ratings.

The outlook means the bank has a big capital base which can absorb unexpected losses, said Moody’s while giving the bank B1 stable, the same rating as was given to Kenya as country just before it raised Sh290 billion ($ 2.75 billion) through a sovereign bond last year.

S&P gave KCB a B+/B long- and short-term credit ratings with a stable outlook, noting that the financial institution has a wide branch network which provides low-cost funding in the form of deposits.

Moody’s said the firm uses cheap funding for its business, ensuring its liquidity and leaving it with a large room to make high profits.

“KCB’s ratings also capture its strong capital buffers that can absorb unexpected loan losses. Moody’s expects the bank’s capital levels to remain at broadly the current levels,” said Moody’s.

KCB Group has not only high profitability and strong capital, but also good liquidity, said Moody’s analysts.

“KCB’s ratings reflect its solid profitability metrics, strong capital buffers, and deposit-based funding structure, with high levels of liquid assets,” said Moody’s.

“The verdict by the two agencies is a clear confirmation of KCB’s story of a strong growth that is formed around building not only a profitable but also a sustainable business,” said KCB Group CEO Joshua Oigara in a statement.

READ: KCB eyes Sh28bn injection of cash to issue as loans

Mr Oigara added that the bank would continue to leverage on innovation to simplify access to financial services, focus on customer experience while boosting capital buffers.

S&P said that the bank was supported by strong domestic corporate franchise and is increasing penetration in the retail market, thereby placing it in a position to maintain its revenue stability.

“The ratings on KCB are supported by the bank’s strong domestic corporate franchise and its increasing penetration of the Kenyan retail market. We believe KCB is well placed to maintain its revenue stability in the context of rising external shocks and weaker domestic economic growth,” said S&P.

However, S&P added that loan losses were likely to increase, but stronger margins and corporate lending would ensure revenue generation in the next 18 months. It noted that KCB is facing elevated non-performing loans due to rising interest rates and weak economic growth.

“However, we expect credit losses will near two per cent over the next two years after they jumped to 1.7 per cent at end-June 2015.”