Lenders get Bbb in credit rating note
Kenya’s banking industry has been given a string Bbb credit rating because of its ability to meet obligations on a going concern basis, says Agusto & Co.
It means that thet are financially stable enough to continue business for the foreseeable future.
However, the Nigeria-based credit rating firm that assessed the industry warned that though strong, it can be susceptible to macro-economic headwinds that could make it less investor friendly.
Agusto considered asset quality, inflation, currency devaluation, debt sustainability, fiscal deficit and climate risk to rate the industry.
Rising inflation
Agusto’s regional director Ikechukwu Iheagwam said the sector is at the borderline and if the indicated macro-economic parameters deteriorated through fiscal indiscipline, rising inflation rate, increase in exchange parity rate, then this could impact on the performance of the whole industry.
“If you were to do business in this particular industry, you need to be cognisant of what risk the industry carries,” said Iheagwam.
The group’s managing director Yinka Adelekan said the assigned rating takes into cognizance the country’s profile risk, the industry’s relevance and financial condition. “We also assessed key trends and developments, as well as emerging issues for the Kenya Banking Industry , especially with the growing importance of sustainable and responsible business practices globally,” Adelekan said.
They were speaking yesterday in Nairobi when the firm launched the 2023 Kenya banking Industry Report, with the theme ‘Enhancing Banks’ Resilience and Sustainability Amid Multiple Macro-economic Shocks. It is the first report by a private entity to be released in Kenya.
Economic headwinds
The sector remains resilient despite the prevailing macro-economic headwinds in the country and plays a crucial role in Kenya’s economy which is the largest in East Africa.
Growth in the past decade has been attributed to thriving mobile money system, rising virtual banking solutions and substantial investments in technology infrastructure.
Despite the industry’s remarkable growth, there are concerns around the ballooning non-performing loan ratios currently at 14 per cent and likely to increase to increase to 14.2 per cent, as well as the debt to GDP ratio which is almost 69 per cent and debt service to revenue ratio estimated to hit 50 per cent.
These factors, Iheagwam reckons, impact on the banking industry and needed to be corrected, especially on the back of an impending Eurobond that is due for payment. “Does Kenya have a sufficient amount of money to pay. Would we pay, would we renege...do we want to follow Ghana and downgrade our ratings and have a bad reputation,” he paused.
