Johannesburg, 10 Jun 2013 — Global Credit Ratings has assigned Kenya Commercial Bank initial national scale issuer ratings of AA(KE) and A1+(KE) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until 6/2013.
Global Credit Ratings has accorded the above credit rating(s) on Kenya Commercial Bank based on the following key criteria:
The accorded ratings reflect Kenya Commercial Bank Limited’s (“KCB” or “the group”) established domestic and regional franchise value. Further, KCB displays a strong balance sheet, as well as risk appropriate capital cushioning. These are, however, partly offset by the variability of earnings across operating jurisdictions. The market is also vulnerable to weather changes (impacting on food security) and setbacks in the global recovery.
KCB is the largest bank in Kenya accounting for 13% of all assets as at FYE12. Government support is considered likely, given that KCB’s size and market presence poses significant systemic risk should the institution fail. Government’s shareholding was also factored in, albeit on a limited use basis.
Impacted by the difficult operating environment across all target markets, consolidated impaired loans increased by 21% in F12. The gross non-performing loans (“NPLs”) ratio increased to 6.7% as at FYE12, up from 5.9% in the previous period and above the industry average of 4.7%. Provisions covered 60% (FYE11: 65%) of NPLs, while lending is generally on a collateralised basis. Further, net NPLs remain negligible as a percentage of capital at 2.8%.
A pre-tax profit of KShs17.2bn was recorded for F12, up 13.7% (F11: 54%) from the previous year. The slowdown in earnings growth was due to restrained loan growth, higher impairment charges and low trading volumes.
Although KCB displays contractual asset/liability mismatches, this is in line with the market with roughly 25% of advances maturing within 1 month, compared to 74% of deposits as at FYE12. Liquidity risk is partly ameliorated through maintaining a liquid balance sheet. Liquid assets covered short-term funding by 40% as at FYE12, against a prudential minimum of 20%.
Positive movement/s: Improved earnings performance, while maintaining credit protection ratios will be considered positive.
Negative movement/s: A weakening of earnings and asset quality problems associated with inadequately controlled growth, weak credit administration, uncertain political environment and the weakened global economic outlook.
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