Kenya Commercial Bank has received a favourable rating from global credit research firm Moody’s in its maiden rating of a Kenyan bank.
Moody’s rated KCB ‘stable’ based on its solid profitability metrics; strong capital buffers; and deposit-based funding structure, with high levels of liquid assets.
The bank was rated B1 (Not-Prime) on the global local-currency deposit ratings; B2(Not-Prime) on foreign currency deposit ratings and a B1 standalone baseline credit assessment (BCA).
Moody’s BCAs are a measure of an issuer’s standalone financial strength that describe the probability of a bank defaulting on any of its rated instruments, in the absence of external support.
KCB’s standalone baseline credit assessment of is currently placed at the same level as the government bond rating.
“These strengths are balanced against the bank’s high asset risk, amid elevated non-performing loans (NPLs) and credit costs, and structural challenges in Kenya’s operating environment,” a statement to newsrooms read.
Moody’s also assigned a Counterparty Risk Assessment (CR Assessment) of Ba3(cr) (Not Prime(cr).
KCB is the biggest bank in the country with Sh566.6 billion assets and Sh443 billion customer deposits. The bank has Sh320.6 billion in loans with a shareholding funds of Sh78.1 billion.
KCB has over 250 branches and more than 7milion customers. According to Financial Analysts Cyton Investments, KCB Mpesa, a partnership with Safaricom, is expected to be a key growth driver for the bank in terms of deposits and loans.
Mobile banking and agency banking are also pitted to enhance digital payments and more efficient delivery of services.
Cyton Investments say the launch of KCB Insurance will enhance integrated service offerings on bancassurance and investment banking and will continually offer 28.7 per cent return on equity in the coming four years.
Moody’s assessed KCB’s operating environment as well as risks stemming from its regional operations. The banks operates in five East African countries, including Tanzania, Uganda, Rwanda, Burundi and South Sudan which make up less than 10 per cent of net profit and around 12 per cent of loans.
The international credit research firm says the chances of improving KCB’s ratings will depend largely on an upgrade in the sovereign rating and an improvement in the overall operating environment.
They however recommended a reduction in non–performing loans and strengthening in its provisioning coverage to put upwards pressure on the bank’s ratings.