Report: Strong Buffers to help Kenyan banks to Mitigate challenges

Kenyan Banks are expected to continue facing challenges ahead with ‘muted loan growth and mounting asset quality pressure’ but strong buffers will mitigate the impact according to Moody’s Investors Service.

“The Kenyan banking system is experiencing a patch of low credit growth and mounting asset quality pressure” says Christos Theofilou, an Associate Vice President at Moody’s. “Lending rate caps at 14 percent have exacerbated a slowdown in credit growth that began early last year, after banks tightened lending criteria in response to a spike in nonperforming loans.”

Moody’s in its latest report  “KCB Bank, Equity Bank, Co-op Bank. Peer Comparison – Kenya’s Rated Banks Face Challenging Conditions; Strong Buffers to Mitigate Impact”, will maintain healthy profits, strong capital buffers which provide substantial protection against downside risks and help support the bank’s credit quality.

The peer comparison report follows the recent assignment of new ratings by Moody’s to Equity Bank Kenya Limited (Equity) and the Co-operative Bank of Kenya Limited (Co-op), in addition to KCB Bank Kenya Limited (KCB), which Moody’s has rated since 2015. All three banks carry long-term local currency deposit ratings of B1 with a stable outlook on the global scale, whereas Moody’s has introduced some differentiation on the national scale rating, with Equity Bank at Aa1.ke and Co-Op Bank at Aa2.ke.

Moody’s also cited that, “A severe drought that has driven up food and fuel prices, combined with reduced investment spending ahead of August’s national elections, is putting small borrowers in Kenya under stress. This is creating a challenging environment for Kenya’s three largest banks, says Moody’s Investors Service in a peer comparison report published today.”