Moody’s Investors Service said it had placed the ratings of Kenya’s top three lenders (KCB Bank, Equity Bank and Co-operative Bank) on review for possible downgrade, citing a potential deterioration of the Kenyan government’s credit profile.
Moody’s action comes days after placing Kenya’s B1 government ratings on review for downgrade.
Moody’s says the banks’ sizable holdings of sovereign debt securities inevitably link their creditworthiness to that of the national government. To a lesser extent, the rating action also captures pressures on Kenya’s macro profile, in light of the currently challenging operating conditions, which are in turn weighing on the banks’ asset quality profiles.
“The rating action is primarily driven by the potential deterioration of the Kenyan government’s credit profile, as captured by Moody’s recent rating action to place the B1 sovereign rating on review for downgrade. Kenyan banks’ high exposure to government debt links their credit profile to that of the government, leading to banks’ standalone credit profiles and ratings being constrained by the rating of the government. The top three banks’ sovereign bond exposures average around 1.4x of their tangible common equity, according to the banks’ unaudited financial statements as of June 2017.” Moody’s noted.