Moody’s tips Kenyan banks to maintain profit-making streak

Kenya banks are expected to continue making profits this year on the back of expected growth in the economy and a double-digit expansion in credit uptake, says rating agency Moody’s.

The agency said the lenders will post strong profits over the next four quarters from increased spending in road, rail, port and other infrastructure projects.

The international rating agency expects that infrastructure spending will increase productivity and support the services sector. This is in turn expected to result in higher demand for credit.

“We expect real gross domestic product (GDP) growth in Kenya of close to 5.7 per cent in 2016 supported by a substantial level of infrastructure spending which will boost productivity and a rapidly expanding services sector. In turn, this will support credit growth of around 15 per cent and rising business opportunities for Kenyan banks,” said Moody’s.

The local banking industry is also expected to perform better than other regions over the next couple of quarters.

“Despite a backdrop of global emerging market volatility, we expect Kenya’s banks to maintain solid capital and liquidity buffers over the next 12-18 months,” said Christos Theofilou, an analyst at Moody’s in a statement.

Kenya’s non-reliance on commodity exports is one of the factors that will make the general economy fare better than other markets. The growth in the number of bad loans is expected to remain flat over the same period.

“Kenyan banks’ non-performing loans stood at 5.4 per cent as of September 2015, and have been broadly stable over the past two years,” said the rating agency.

The agency however said that banks’ margins will be under pressure due to increased competition.

“The banks will continue to face downward margin pressure from increased competition and elevated loan-loss provisioning, but the rating agency expects this to be countered by rising interest rates, cost-cutting and robust business and credit growth,” said Moody’s.