East Africa’s largest bank, KCB Group, says
any upgrade of Kenya’s sovereign rating by Moody’s will see an
improvement of its rating in line with the criteria used in recent
downgrade.
Reacting to a downgrade of its rating along that of two other commercial banks—Equity
and Co-op Bank
–KCB pointed to its capital ratios and a resilient retail and corporate business lines as indicators of strong fundamentals.
The
downgrade of the banks followed similar action on Kenya resulting from
the weakening of the state’s credit profile due to a high fiscal deficit
in excess of six per cent, as well as a public debt that now exceeds
Sh4 trillion or more than 50 per cent of the gross domestic debt.
“The
downgrade is in line with the action on the sovereign. KCB’s
fundamentals remain strong, backed by solid capital ratios and a
resilient retail and corporate business, ring-fencing our growth agenda.
Based on this, we would expect an upward review on the
sovereign’s rating would have a similar effect on KCB’s rating,” it said
in a statement.
Neither Equity nor Co-op Bank had responded to our request to react to the downgrade by press time.
The
downgrade means the institutions and the government would potentially
face higher lending rates should they seek credit or float a bond.
“Moody’s
Investors Service has downgraded to B2 (stable outlook), from B1
(Rating Under Review outlook), the long-term local currency deposit
ratings of three Kenyan banks: KCB, Equity Bank Kenya, and Co-operative
Bank),” said the agency in a statement.
It added that
the lower rating resulted from the downgrade of the issuer rating of the
Kenyan government given earlier last week.
The three banks hold a combined Sh270 billion in government securities as at September 30, 2017.
Besides
the three named in the Moody’s report, other commercial banks have
increased their holdings of government securities in the past as a way
to guard against increased exposure to credit to the private sector at
capped interest rates.
Fitch and Standard & Poor’s retain Kenya rating though.
Geoffrey
Mwau, director-general of budget, fiscal and economic affairs at the
Treasury, has disputed the downgrade, saying it did not reflect the
country’s fundamentals, stressing the last fiscal year was marked by
difficulties including drought and two elections that occasioned huge
one-off costs.
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