Tuesday, February 20, 2018

KCB says capital ratios strong despite Moody’s downgrade

Treasury director-general of economic affairs Geoffrey Mwau. FILE PHOTO | NMG Treasury director-general of economic affairs Geoffrey Mwau. FILE PHOTO | NMG 
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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