Kenya’s biggest lender, KCB Group’s Outlook has been revised from stable to negative by global credit rating agency Fitch Ratings attributing to the economic effects of the coronavirus pandemic.
Ratings are calculated on a scale of 11 predictors, with Fitch relying on independent auditors, other experts to produce IDRs.
The rating agency views that the lender’s asset quality weakened following the consolidation of National Bank of Kenya’s problem loan book, as highlighted by a 300bp increase in its impaired loans in 2019.
However, Fitch says it “…has a positive view of management quality and corporate governance.”
NBK was acquired in October 2019. “The acquisition has had a modest impact on KCB Group’s Fitch Core Capital (FCC) ratio (17% at end-2019), but impaired loans net of specific provisions remain high relative to FCC (46% at end-2019),” says the American rating agency.
While KCB Group delivers strong profitability metrics, Fitch expects to see pressure on profitability metrics as a result of increased loan-impairment charges, moratoriums on capital and interest payments for borrowers, and a period of lower interest rates.
Fitch forecasts Kenya’s GDP growth to slow to 1% in 2020, followed by 4% growth in 2021, but with material downside risk for 2020 growth depending on the extent and duration of the coronavirus pandemic and the consequent lockdown measures.