Announcements Financial Institutions Rating Alerts

GCR assigns Kenya Mortgage Refinancing Company Plc Kenyan national scale ratings of AA-(KE) / A1+(KE); Stable Outlook

Rating Action

Nairobi, 18 October 2021 – GCR Ratings (“GCR”) assigns Kenya Mortgage Refinancing Company Plc national scale ratings of AA-(KE) and A1+(KE) in the long and short-term, respectively. Outlook is stable.

Rated Entity Rating class Rating scale Rating Outlook / Watch
Kenya Mortgage Refinancing Company Plc Long Term Issuer National AA-(KE) Stable Outlook
Short Term Issuer National A1+(KE)

Rating Rationale

The ratings on Kenya Mortgage Refinancing Company Plc (‘KMRC’, ‘the company’) balance a short track record, monoline operations and limited geographic diversification with the company’s government and market defined mandate to conduct mortgage refinancing in Kenya. Furthermore, the ratings reflect robust capitalization, expected sound risk profile, relatively stable funding, and strong liquidity levels.

Nairobi based – KMRC is a non-deposit taking wholesale financial institution that was licenced by the Central Bank of Kenya (‘CBK’) in September 2020 to conduct the business of mortgage refinancing in Kenya. The entity focuses on offering refinancing to primary mortgage lenders (‘PMLs’) who have subscribed as shareholders of the company to provide them with long-term funding. We consider 1) KMRC being the sole mortgage refinancing company in the Kenyan market currently, 2) reputable shareholding and 3) government social mandate enshrined in the Kenyan big four agenda for affordable housing as competitive strengths. However, the competitive position is constrained by the limited track record, product concentration, and still developing social impact measurement and reporting.

The management and governance assessment is a neutral rating factor. We consider the management and governance structure to be appropriate. Successful execution of the strategy set by the company will further cement the assessment.

The financial profile is supportive of KMRC’s credit profile. Capitalisation is very strong, with a GCR leverage ratio of 14.7% at FY21. Even with expected loan book growth in the coming years, we expect capitalisation to remain at very strong levels over the outlook horizon. Earnings are considered to be stable supported by interest income from bank placements and government securities.

The risk position is currently moderate ratings positive supported by the sound credit risk policies from origination. We expect the company to record well below industry average credit losses over the rating horizon due to the loan book’s ‘double collateralisation’ from the PML, the collateral from the home loans and the ability of KMRC to enforce loan replacement when a home loan defaults. These strengths are somewhat offset by the limited operational track-record. As a result, as the risk position score could improve in the next couple of years as a track-record is established.

Funding and liquidity for the company is considered ratings positive. Though concentrated, we consider funding to be stable given the long-term maturity, on-going grace period and the profiles of the creditors. We have also factored the tenor (over 10 years) of the credit lines from the World Bank and the African Development Bank (‘AfDB’) to assess this parameter and are confident the entity will be adequately funded in the medium term. Liquidity levels remain strong with investments towards bank placements and government securities providing adequate liquidity cover for the entity in the next 12-18 months.

Outlook Statement

The outlook is stable. We expect moderately robust growth in lending to take shape in the next 12-18 months as the entity continues to engage with shareholder PMLs, maintaining low cost of risk and a strong GCR capital ratio. We also expect the entity to enhance its funding through corporate bonds to facilitate market rate mortgage refinancing.

Rating Triggers

The ratings could be upgraded if 1) the entity manages to build on its track record while maintaining low levels of credit losses, 2) raises and maintains a more diversified long-term funding structure, and 3) if the entity maintains a healthy capital position while accelerating on its lending activities.

Conversely, we could lower the rating if the company fails to execute on its mandate as well as a decline funding and liquidity levels.

Analytical Contacts

Primary analyst Dennis Kariuki Senior Financial Institutions Analyst
Nairobi, KE DennisK@GCRratings.com +254 70 304 1618
Secondary Analyst Vimbai Mandebvu Senior Financial Institutions Analyst
Johannesburg, ZA VimbaiM@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Financial Institutions, May 2019
GCR Rating Scales Symbols and Definitions, May 2019
GCR’s Country Risk Score report, August 2021
GCR’s Financial Institutions Sector Risk Score, September 2021

Ratings history

Kenya Mortgage Refinancing Company Plc

Rating scale Review Rating class Rating Outlook/Watch Date
Long Term Issuer Initial/Last National AA-KE) Stable October 2021
Short Term Issuer National A1+(KE)

Ratings Score Summary

Rating Components & Factors Risk scores
Operating environment 6.50
Country risk score 4.00
Sector risk score 2.50
Business profile (2.50)
Competitive position (2.50)
Management and governance 0.00
Financial profile 5.75
Capital and Leverage 4.00
Risk 0.50
Funding and Liquidity 1.25
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 9.75

Glossary

Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Capital The sum of money that is invested to generate proceeds.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to Kenya Mortgage Refinancing Company Plc. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Kenya Mortgage Refinancing Company Plc participated in the rating process via virtual management meetings, as well as other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Kenya Mortgage Refinancing Company Plc and other reliable third parties to accord the credit ratings included:

  • The audited financial results for the year to December 2020
  • Two years of comparative audited numbers
  • Management accounts, up to September 2021
  • Debt facility details at December 2020
  • Other related documents


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