Acting Treasury minister Ukur Yatani (left) at the Senate on November 20, 2019. PHOTO | SALATON NJAU
Summary
- The fortunes of the banks are consequently tied to governments, with Moody’s adjusting views on banks depending on the sovereigns.
- In Kenya, banks have been preferring the lending government to risky borrowers, flooding Treasury bill and bond auctions.
- The rate cap ushered in three years of cheap credit for the government in the domestic market that saw the Treasury ramp up domestic borrowing from Sh1.8 trillion in June 2016 to Sh2.9 trillion in this year.
Global rating agency Moody’s review of 12 markets shows Kenyan
lenders are the second most exposed to the government with almost 300
per cent of their equity lent out to the State. However, Egyptian banks
are even more exposed on lending Cairo 603 per cent of their equity.
The
fortunes of the banks are consequently tied to governments, with
Moody’s adjusting views on banks depending on the sovereigns.
“Banks
will maintain high government exposure because they are the main
financiers of wide fiscal deficits,” Moody’s said in the year 2020
outlook.
“The bulk of our recent African bank rating
actions has followed sovereign rating actions despite banks’ financial
performance remaining generally resilient. This reflects the
aforementioned large sovereign exposure,” the agency said.
In Kenya, banks have been preferring the lending government to risky borrowers, flooding Treasury bill and bond auctions.
The rate cap ushered in three years of cheap credit for the
government in the domestic market that saw the Treasury ramp up domestic
borrowing from Sh1.8 trillion in June 2016 to Sh2.9 trillion in this
year.
Banks are now reducing exposure to the government
following the repeal of the cap in November, where the government has
offered to procure Sh96 billion debt but has only got banks to bid half,
Sh48.7 billion, over the last four weeks.
A recent
Sh50 billion ten-year bond received Sh38 billion, prompting the central
bank to reduce the current five-year bond to only Sh25 billion.
Analysts
say there is pressure for banks not to cut out the government, which
will have the effect of driving rates up if the Treasury becomes
desperate.
Moody’s said besides banks being exposed to
country ratings, their customers are also exposed to late payments by
State a double edge sword that may make more loans toxic.
“Problem
loans will remain high given an accumulation of payment arrears, and
problems at select large corporates,” the agency said.
Moody’s
expects loan growth to accelerate, following the repeal of
interest-rate caps on bank lending which will support banks’
earnings-generating capacity.
The ratings agency also
sees banks will maintain strong capital buffers, high liquidity —
especially in local currency — and a stable, deposit-based funding
structure.
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