Kenyan banks’ profitability recovery may be disrupted by the Russia-Ukraine conflict through second-order risks to the banks’ operating environment, Fitch Ratings says.
According to the US rating agency, lenders in Kenya are not exempt from effects of the Ukraine conflict and other global risks.
The upcoming August polls could also disrupt the post-pandemic recovery of banks in Kenya.
While interest rates hikes to counter inflationary pressures could boost bank margins, high loan repayment default could erode these gains.
Fitch Ratings says that global financing pressures will limit banks’ external financing options and raise the cost of funding.
Nevertheless, large Kenyan banks have massive deposits with less reliance on market funding and will thus override funding and liquidity risks.
Fitch Ratings said strong capital buffers would allow Kenyan banks to grow and absorb asset quality risks, especially for lenders with regional networks who will override domestic challenges.
The rating agency said Kenya is a net oil importer, and thus high energy costs will directly hit its transport and manufacturing sectors.
Kenya’s tea exports to Russia will be affected if the conflict persists. The country is also sensitive to rising fertilizer costs, and thus any price hikes will affect the agriculture-dependent economy.
Kenya imports wheat from Russia and Ukraine, and thus any escalation in the conflict could lead to shortages.