S&P urges Kenyan banks to seek rating

Kenyan banks should seek rating so as to raise chances of securing capital from abroad, a global rating agency said Thursday.

The country’s cross-border financing remains limited unlike in some of its peers such as Nigeria, the workshop organised by rating agency Standard & Poor’s (S&P) in Nairobi heard.

Nigerian banks after ratings have raised more than $3 billion (Sh265 billion) from overseas in the past year, Samira Mensah, an associate director for Europe, Middle East and Africa said.

“Kenyan banks do not have ratings and this could be hampering their easier access to overseas financing. Nigerian banks have been rated and have attracted over $3 billion recently,” she said at the InterContinental Hotel.

Most of the hard currency funding Kenyan banks have received has come from development finance institutions such as the World Bank’s International Finance Corporation and French-owned Proparco as opposed to private sources.

It emerged the tendency to rate local institutions lowly was a major obstacle to seeking the rating.

“I know some banks tried to get ratings, but they only received ‘Cs’ and so others were not encouraged to pursue rating any further,” said ZEP-RE finance director Benjamin Kamanga. He did not disclose the firms involved.

The ‘C’ rate would be speculative grades and under the S&P grading, it shows a country or organisation is “vulnerable … currently highly vulnerable or a bankruptcy petition has been filed against it”. On that basis if such an institution issued a bond, it would be considered speculative or a junk bond, meaning high chances of default and high interest.

Ms Mensah, however, said rating is mainly done using criteria applicable globally and low grades did not necessarily mean banking institutions would not attract overseas financing.

According to S&P’s bank industry country risk assessment (BICRA) for Kenya the banking industry is at “extremely high credit risk”, meaning there are still high chances of borrowers defaulting.

The rating agency uses BICRA as an opinion tool to assess and compare banking systems worldwide.

Victor Nkiiri, a general manager at Fidelity Commercial Bank, voiced concern over the very low rating given to Kenya and its institutions, saying foreigners have difficulty assessing the real strength of the local banking institutions.

“My view is that foreigners sometimes do not understand Kenyan banks. When someone comes from London and wants to give an assessment, it may not necessarily represent the reality,” Mr Nkiiri said.

Ms Mensah agrees Kenya has high growth prospects of above five per cent this year and the next as well as a fairly diversified economy.

She added, however, that there were serious vulnerabilities because of its low wealth, shortfall in infrastructure, high current account deficit, vulnerability to external and the political risks remaining high. But she pointed out appetite for frontier and emerging debt remains.

“There is interest from investors in debt even from countries that have low ratings,” said Ms Mensah.