Moody’s assigns first-time ratings to Kenya’s Equity Bank and Coop Bank

Moody’s Investors Service have assigned first-time B1/Not Prime global local-currency deposit ratings to Equity Bank and Co-operative Bank of Kenya.

They  also assigned both banks Counterparty Risk (CR) Assessments of Ba3(cr)/Not Prime(cr), global foreign-currency deposit ratings of B2/Not Prime and b1 baseline credit assessments (BCAs) and Adjusted BCAs. On the Kenyan national scale, Moody’s has assigned deposit ratings of Aa1.ke/KE-1 to Equity Bank and Aa2.ke/KE-1 to Co-op Bank. All long-term global scale deposit ratings carry a stable outlook.

Equity Bank’s and Co-op Bank’s B1 global local-currency long-term deposit ratings are fully aligned with the B1 (Stable) rating of the Kenyan government. Both banks reach this rating level solely based on their standalone strength, as indicated by their b1 standalone BCAs, Moody’s highest ratings in Kenya.

Read: KCB Group and Equity Bank ranked Top 25 African banks 

Despite Equity Bank’s lending focus on small- and mid-sized enterprises, which has been challenged by the operating environment, Moody’s notes Equity Bank’s defensive response by meaningfully reducing loans and shifting its resources towards the purchase of high-yielding government securities.

In contrast, Moody’s expects Co-op Bank to pursue a more aggressive loan growth strategy despite the challenging operating environment following a period of internal reorganisation and strategic transformation that has given the bank new tools and confidence to increase market share.

Nevertheless, Co-op Bank’s focus on stronger borrowers, such as Savings and Credit Co-operative Organisations and salary-assigned government personnel, should help contain asset quality pressure arising from pocket exposures to weakening sectors, such as in the trade sector.

Although Equity Bank and Co-op Bank are systemically important and Moody’s attaches a very high probability of government support in case of need, their ratings do not benefit from any uplift because their BCAs are already at the government’s rating level.

Equity bank

Equity Bank’s B1/Not Prime global local-currency deposit ratings capture the bank’s standalone credit strength reflected in a b1 BCA, which is at the same level as the Kenyan government issuer rating.

Equity Bank’s BCA reflects:

(1) its strong brand recognition, established domestic franchise, and its extensive use of digital and alternative distribution channels which supports high and resilient profitability, and

(2) its solid liquidity buffers and resilient funding profile supported by its granular retail depositor base.

“These strengths are balanced against the aforementioned challenging operating environment that leads to elevated asset risks, particularly for the SME segment (accounting for 55% of Equity Bank’s loans). At the same time, Moody’s expects any further asset quality deterioration to be manageable, supported by the bank’s response in meaningfully reducing loans and instead purchasing high-yielding government securities.”

Cooperative bank of Kenya

Co-op Bank’s B1/Not Prime global local-currency deposit ratings capture the bank’s standalone credit strength reflected in a BCA of b1. The bank’s BCA is placed at the same level as the B1 (Stable) Kenyan government issuer rating and reflects its :

(1) domestic franchise and transformation strategy, which has strengthened profitability and its funding profile, and

(2) high capital levels. These strengths are balanced against an increasingly challenging operating environment that leads to elevated asset risks.

“At the same time, the bank’s transformation agenda continues to support improvements in its infrastructure and distribution channels, the migration of customers to alternative distribution channels, efficiency improvements, strengthened credit and risk management capabilities and improved services quality levels.”

According to Moodys, “Equity Bank’s and Co-op Bank’s global long-term deposit ratings carry a stable outlook, which balances the risks in the operating environment, against the banks’ strong loss-absorption buffers and the stability afforded by their retail funded deposit base.”