Kenya’s KCB Bank Kenya, Equity Bank Kenya and Co-operative Bank of Kenya have received an upgrade in their credit rating, following the latest review by Moody’s.
The three, whose rating now stands at Ba, are tier I banks that form a list of 37 commercial banks in the country. The rating is an uptick from the Caa1.
The change followed an improvement in Kenya’s own sovereign credit rating, meaning the country is now considered less risky to lend to.
Why the ratings improved
The agency said Kenya’s financial position has strengthened in recent months and enjoys a lower short-term risk of default, stronger foreign exchange reserves, a narrower current account deficit, and a more stable shilling.
Because banks hold large amounts of government securities such as Treasury bills and bonds, their creditworthiness is closely linked to that of the government.
Also Read: Moody’s Gives Reasons for Updating Kenya’s Credit Outlook to Positive
A higher credit rating gives banks several advantages, with the advantage of borrowing money at cheaper interest rates and gaining more confidence from depositors, investors and other funders.
The ratings agency also gave the banks a stable outlook, meaning it does not expect the ratings to fall in the near future.
Improving loan performance
The upgrade was also supported by better performance within the banking sector, pointing to improved profits, a decline in bad loans and lending to the private sector has started growing again.
Part of the improvement came after the government paid some pending bills owed to contractors, which reduced unpaid loans linked to public projects.
As banks access funds more easily, businesses and individuals may also find loans more affordable, supporting economic growth.
