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Moody’s Assigns a Stable Outlook For Kenyan Banking Sector

Moody's Investors Service for the first time, has a stable rating to the Kenyan banking sector due to a recovering economy.

Nairobi, the capital City of Kenya. PHOTO: KHUSOKO

Moody’s Investors Service in early February assigned, for the first time, a stable rating to the Kenyan banking sector.

“…on expectations that a recovering economy will enable banks’ loan quality and profitability to rebound from weakened levels, while capital, funding and liquidity will remain strong,” Moody’s said in a statement. 

However, besides loans as the min credit challenge facing Kenyan banks, the agency noted that non-performing loans (NPL) will decline in the next 12 to 18 months.

The Central Bank of Kenya shows that the banking sector posted an impressive performance in the eleven months to November 2021.

During the period, the sector’s profits before tax were Kshs 178.8 billion, higher than the pre-pandemic earnings of Kshs 150.1 billion over the same period in 2019.

The gradual economic recovery is also expected to support banks in improving their loan quality and profitability, while capital, funding, and liquidity will remain strong, in line with our Q3’2021 Banking Sector report.

“However, we note that despite the improvement seen in the Asset Quality for the listed banks in Q3’2021, with the gross NPL ratio declining by 0.4% points to 12.0%, from 12.4% in Q3’2020, the NPL ratio for the banking sector remains higher than the 10-year average of 8.1% coming in at 13.9% as of August 2021. 

We also anticipate a decline in loan growth in 2022 as banks reduce lending to the private sector in response to the uncertainties surrounding the August elections. 

This is in turn expected to have a trickle-down effect on the interest income from loans and advances. 

Additionally, we believe that, in the medium term, banks will continue to overprovision, albeit at a lower level than in 2020, due to the uncertainty brought about by the emergence of new COVID-19 variants,” commentary from Cytonn Investments.


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