Moody’s Investors Service has assigned the tier-one lenders a first-time B1/Not Prime global local-currency deposit rating, with a stable long-term outlook.
The rating firm, however, noted the banking industry was facing a challenging environment, largely characterised by a biting drought.
Moody’s Investors Service has rated as strong the capacity of Co-operative #ticker:COOP and Equity #ticker:EQTY banks to continue mobilising deposits from the domestic and global institutional investors in a capped rate environment.
The service has assigned the tier-one lenders a first-time B1/Not Prime global local-currency deposit rating, with a stable long-term outlook.
Moody’s said that Equity and Co-op — with some of the largest retail networks that fund their businesses — are in a strong position to absorb losses arising from reduced interest earnings and have liquidity buffers to withstand their weakening asset (loan) quality.
The rating firm, however, noted the banking industry was facing a challenging environment, largely characterised by a biting drought, which has affected agricultural production and power generation.
The August 8 General Election has, on the other hand, delayed investment decisions, while the capping of interest at four percentage points above the Central Bank Rate has constrained their flexibility to price risks, it added.
“Equity Bank’s and Co-op Bank’s B1 global local-currency long-term deposit ratings are fully aligned with the B1 (stable) rating of the Kenyan government,” the firm said.
“Both banks reach this rating level solely based on their stand-alone strength, as indicated by their B1 standalone BCAs, Moody’s highest ratings in Kenya.” Equity’s deposit rating at the national level has been put at Aa1 while Co-op’s is at Aa2.
Equity deposits in the first quarter of the year grew by 16.1 per cent to Sh347.5 billion while Co-op’s were up by a marginal 6.9 per cent to Sh279.8 billion in the same period.
Moody’s said Equity’s defensive strategy to cut lending to customers, largely small- and medium-sized enterprises, and shift the same to high-yielding government securities has shielded it from risks associated with the SMEs in the rate-cap regime.
The rating firm expects Co-op Bank to pursue a more aggressive loan growth strategy in the coming months after its loan book expanded by 15.06 per cent year-on-year in three months ended March 31 to Sh245.9 billion.
Moody’s sees Co-op Bank’s focus on stronger borrowers — largely saccos and salaried government employees —helping “contain asset quality pressure arising from pocket exposures to weakening sectors, such as in the trade sector”.
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