GCR reviews Victoria rating as non-performing loans up

Dr Yogesh Pattni chief executive officer Victoria Commercial Bank of Kenya. FILE PHOTO | NMG

South African rating agency GCR has reviewed Victoria Commercial Bank’s (VCB) long-term national scale issuer rating to BBB-, reflecting the higher volume of non-performing loans in the banking sector arising from the manufacturing and trade sectors.

The tier-three lender whose net non-performing loan ratio stood at 4.8 percent as at June 2022, has like other banks, seen its lending to customers accelerate this year on the back of a recovering economy, straining the quality of the asset base.

The lender, GCR noted, however, benefits from a stable funding structure of which two-thirds is in form of term deposits, but concerns over the strain on capital from higher lending led to the revision of the rating from BBB.

“Positively, term deposits have proven to be sticky, supporting the bank’s GCR stable funding ratio (customer deposits plus long-term borrowings/total funding needs) of 92 percent as of 30 June 2022,” said GCR.

The bank has in this year been on a capital raising drive to shore up its adequacy ratios in light of the expanded loan book.

In June, the lender secured a $10 million (Sh1.2 billion) loan from the Belgian Investment Company for Developing Nations towards tier-two capital. The funds, VCB said, would boost its lending to small businesses that have in recent years been starved of credit by formal lenders due to heightened risk perception.

In September, the lender also secured a loan of $20 million (Sh2.4 billion) from the Arab Bank for Economic Development in Africa, meant for on-lending towards projects by private sector players in Kenya.

Local banks have been diversifying funding sources to include development finance institutions and international lenders, partly to help them access foreign currency loans.

The drive for new capital has been informed by a need to protect their ratios at a time they are growing their lending to the private sector, partly in recognition of a growing economy and also due to mark-to-market loses in government securities as a result of rising global bond yields.

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