Fitch downgrades KCB, NCBA and I&M on State debt risk
The multinational ratings agency said it has downgraded the long-term issuer default ratings (IDRs) of the three banks and their bank holding companies given their high sovereign exposure.
Fitch Ratings has downgraded the credit rating of KCB Bank Kenya, NCBA Bank Kenya, I&M Bank Limited and their holding companies on the back of weakened financial position of the government.
The multinational ratings agency said in a statement that it has downgraded the long-term issuer default ratings (IDRs) of the three banks and their bank holding companies (BHCs) to 'B-' from 'B' with a negative outlook given their high sovereign exposure, mainly in the form of government debt securities.
“The downgrades of the domestically-owned banks and BHCs are driven by the downgrades of their viability ratings to 'b-' from 'b', which reflect the issuers' high sovereign exposure relative to capital and the concentration of their activities in Kenya,” said Fitch in a statement issued Thursday.
“The downgrades of KCB Bank and NCBA Bank are also driven by the downgrades of their government support ratings (GSRs) to 'b-' from 'b', which reflect the government's weaker ability to provide support, if required, as indicated by the recent sovereign downgrade.”
Fitch’s ‘B-’ rating is the lower grade of the ‘B’ or highly speculative rating. Any B rating indicates that a material default risk is present but there is a limited margin of safety. The B- rating is however closer to CCC+, which is a rating that denotes that default is a real possibility.
Fitch at the same time affirmed Stanbic Bank Kenya (SBK) Limited's IDR at 'B' and revised its outlook to stable from negative, becoming the only Kenyan lender on Fitch ratings to escape a downgrade and rank a notch above the sovereign long-term IDRs.
The downgrade of KCB, NCBA and I&M follows the downgrade of Kenya's long-term IDRs to 'B-' from 'B' on August 2, which Fitch said reflected heightened risks to the country’s public finances after the government's move to backtrack on revenue raising measures in the Finance Bill 2024.
Moody’s took a similar view, downgrading Kenya and three banks—KCB Bank Kenya Equity Bank Kenya and Co-operative Bank of Kenya.
Fitch said KCB, NCBA and I&M have a “high exposure” to the domestic economy, including government contractors, small and medium sized enterprises and retail customers, which partly explains their high impaired loans ratios.
However, Fitch explained that Stanbic, whose parent company is South Africa’s Standard Bank, has seen its national ratings unaffected by the sovereign downgrade because of its intrinsic strength and potential shareholder support in case of any challenge.
“The affirmation of SBK's long-term IDR, which is now one notch above the sovereign long-term IDRs, reflects our view that the bank would retain its capacity to service its obligations in case of a sovereign default and that no restrictions would be imposed by Kenya's government to prevent SBK doing so,” said Fitch.
Fitch said the bank would not fail in the event of a sovereign default in both foreign-currency and local-currency, given its moderate sovereign exposure and also its focus on less risky customers, including prime local corporates and subsidiaries of multinationals.
