A repeal of the rate cap law and more mergers and acquisitions in Kenya’s banking industry continues to attract favourable credit ratings.
South African-based S&P Global Ratings, in its latest Banking Industry Country Risk Assessment, has given Kenya’s Banking Sector a B+ Rating.
“We see a stable industry risk trend, reflecting continued consolidation, largely affecting small and midsize banks. In addition, we expect the regulator to support consolidation by facilitating market-led solutions,” said S&P Global Rating Agency.
The rating agency groups Kenya’s banking sector in the same category as Banks in Tunisia, Turkey, Uzbekistan, Vietnam, Cambodia, and Nigeria.
S&P mentions that the economic risk trend in Kenya is stable; reflecting its expectation of reasonably strong headline GDP growth and an acceleration of lending after the cap on lending rates was lifted.
It adds that while strong economic growth prospects will support lending, low GDP per capita wealth dynamics and infrastructure shortfalls could disrupt the sector.
Other negatives that could pull down performance of Kenya’s banking sector include persistent asset-quality trends that reflect large dependence on government flows, weak banking supervision controls and stiff competition among banks in a fragmented market.
Meanwhile, a comparison report by Moody’s states that Kenya’s three largest rated banks have stronger cost-to-income ratios than their Nigerian counterparts.
The report compares KCB Bank Kenya Limited, Equity Bank (Kenya) Limited and Co-operative Bank of Kenya Limited with Nigeria’s Access Bank Plc, Zenith Bank Plc, and United Bank for Africa Plc.
“Over the coming quarters, we expect Kenyan banks to maintain superior profitability to their Nigerian peers, owing to higher margins, stronger cost-to-income, and lower loan-loss provisioning costs,” said Peter Mushangwe, a Moody’s Analyst.
Kenyan banks’ lower cost-to-income ratios primarily reflect their higher net interest margins derived from their greater exposure to retail clients.