Co-op, Equity to gain most post caps — Moody’s

Credit rating agency Moody's expects the loan book of Co-operative Bank and Equity to rise faster than that of KCB based on the former’s focus on lending to small and medium-sized enterprises (SMEs).

The agency says the removal of rate cap in the banking sector will result in higher overall loan growth over the next 12-18 months but it will be tilted more towards small enterprises in sectors like trade and real estate.

This, it explains, gives Co-op #ticker:COOP and Equity #ticker:EQTY an upper hand based on their strong focus on SMEs as opposed to KCB #ticker:KCB, even as it forecasts a sustained gradual fall in non-performing loans ratio from the 12.6 percent posted in August.

“We expect Equity Bank and Co-op Bank to benefit most relative to KCB in terms of loan growth as their lending has been constrained most under the lending rate caps,” said Moody’s.

However, KCB is among the five banks participating in SME-focused Stawi loans alongside Co-op, giving it some room to grow its SME loan book.

Equity is not part of the product.

Between March 2019 and December 2016, Co-op’s net loans grew by eight percent while that of Equity expanded by seven percent in the same period.

The pace is about three times slower than that recorded by KCB.

“Only KCB Bank grew loans faster at 20 percent, reflecting its loan book focus on larger corporate clients and personal salary assigned loans,” said Moody’s.

It further tips Equity to benefit most in terms of higher margins, relative to the other two banks.

Between March 2019 and year-end 2016, Moody’s analysis shows net interest rate spreads for Equity Bank dropped by 3.34 percent, KCB by 1.71 percent and Co-op by 1.65 percent.

President Uhuru Kenyatta Thursday assented the Finance Bill, giving banks the green light to price loans based on customers’ risk profile.

This is after MPs failed to raise a quorum to overturn the Presidents memorandum.