Rating agency Fitch has given KCB Group a boost by affirming the lender’s B+ outlook at a time local banks and firms are facing the threat of expensive credit lines on interest rate hikes by developed countries.
The US central bank has announced its biggest interest rate hike in nearly 30 years increasing its key interest rate to 1.75 percent to fight soaring consumer prices.
Raising rates has an effect of increasing the cost of debt which in turn impacts how global players lend to local institutions such as KCB.
Fitch rating is a boost of confidence in KCB’s credit worthiness, showing the bank is stable and strong and can meet all its obligations in the near future.
Fitch also notes that the lender is systemic, meaning it is too big to fail and the government of Kenya is more likely to rescue KCB Bank in the unlikely event of a crisis.
“KCB Bank’s GSR of ‘b+’ considers a high propensity of the authorities to provide support to the bank given its systemic importance but also Kenya’s limited financial flexibility, as captured in the sovereign rating,” Fitch said.
Fitch also affirmed KCB’s rating, noting the bank had grown its capital ratios from 17.2 percent in 2020 to 19.1 percent last year due to strong internal capital generation and low dividend payments.
KCB Group currently has no funding problem with most of its balance sheet, 91 percent of total non-equity funding, supported by customer deposits.
Deposits are mainly in the form of demand and savings accounts and represent a high share of retail deposits, supporting a stable and inexpensive funding profile.
The bank has also diversified from the Kenyan market, giving it a distributed risk from single economy exposure.
The lender has subsidiaries in Burundi, Rwanda, South Sudan, Tanzania, and Uganda and is pursuing an undisclosed bank in the Democratic Republic of Congo to set a foothold in the Central African country.
Fitch said the recent acquisition of Banque Populaire du Rwanda PLC alone increased the contribution of its foreign subsidiaries to over 14 percent of total assets at end-2021 up from 10 percent in 2020.
KCB Bank’s acquisition of a Rwandese lender tripled its regional branch network last year to 196 outlets.