Rating agency Moody’s has said it had placed on review for downgrade the B1 global scale long-term local-currency deposit ratings and the b1 baseline credit assessment (BCA) of three Kenyan banks, namely; KCB Bank Kenya Limited (KCB Bank), Equity Bank Kenya Limited (Equity Bank), and Co-operative Bank of Kenya Limited (Co-op Bank).
“Today’s rating action is driven primarily by a potential weakening of the Kenyan government’s credit profile, in particular in the country’s fiscal strength and liquidity risk, as captured by Moody’s recent decision to place Kenya’s B1 government ratings on review for downgrade,” agency said in a statement.
Moody’s was reported to have said that the three banks’ sizable holdings of sovereign debt securities exposed their creditworthiness to that of the government.
“To a lesser extent, today’s rating action also captures pressures on Kenya’s macro profile, in light of the currently challenging operating conditions, which are in turn weighing on the banks’ asset quality profiles,” the agency further said.
The agency said that the review was due to persistent deficits as high borrowing costs continue to drive government indebtedness higher, among other factors, Business Daily Africa reported.
“The top three banks’ sovereign bond exposures average around 1.4x of their tangible common equity, according to the banks’ unaudited financial statements as of June 2017,” Moody’s noted.
“Moreover, Moody’s will also re-assess Kenya’s macro profile score of “Weak-”, in light of the currently challenging operating conditions, and the likely impact on banks’ asset quality profile.