Fitch revises rating of Kenyan banks following sovereign downgrade
TLDR
- Fitch Ratings downgrades Kenyan banks' Long-Term IDR from 'B' to 'B-' due to exposure to the country's economic environment.
- The downgrade is in line with Kenya's recent sovereign Long-Term IDR downgrade to 'B-' on August 2, 2024.
- Stanbic Bank's (SBK) outlook revised to Stable from Negative, maintaining its IDR at 'B'.
Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDRs) of three domestically-owned Kenyan banks—KCB, NCBA, and I&M Bank—and their holding companies from 'B' to 'B-', with stable outlooks.
This decision follows the recent downgrade of Kenya's sovereign Long-Term IDRs to 'B-' on August 2, 2024. The downgrade reflects the banks' significant exposure to the Kenyan sovereign and the concentration of their activities within the country.
Meanwhile, Fitch revised the outlook of foreign-owned Stanbic Bank (SBK) to Stable from Negative, while affirming its IDR at 'B'. These rating actions underscore the increased risks faced by these banks due to their high exposure to Kenya's economic environment.
Key Takeaways
The downgrades of KCB Bank and NCBA Bank are further driven by the downgrades of their Government Support Ratings (GSRs) from 'b' to 'b-', reflecting the Kenyan government's reduced capacity to provide support if needed, as highlighted by the recent sovereign downgrade. Fitch anticipates that Kenya's fiscal deficit will widen to 4.7% of GDP in the financial year ending June 2025 (FY25), which is 0.5 percentage points higher than the government's revised deficit plan. This plan had already been adjusted upward by 0.9 percentage points in the July draft supplementary budget. The revenue shortfall has forced the government to rely on more costly borrowing from external commercial creditors and the domestic market, with average yields on short-term government securities rising due to higher central bank rates and tighter domestic liquidity.
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