KCB credit rating unchanged on strong funding, profits

Global credit rating firm Fitch has retained KCB Group’s rating as an issuer of debt at B+ and a negative outlook.

The retention of the rating despite growing headwinds has been attributed to the lender’s strong funding base and improved profits in the past year.

“Profitability recovered strongly in 2021 mainly due to a sharp fall in loan impairment charges despite asset-quality pressures,” Fitch stated.

“Earnings will remain strong given KCB Group’s franchise strengths but we expect some pressure on profitability in 2022 from loan impairment charges amid elevated impaired loans and moderate provisioning levels.”

Fitch says the bank has a strong funding profile with customer deposits representing 91 per cent of the bank’s non-equity funding as of the end of 2021.

Nevertheless, the bank faces headwinds including weaker asset quality which have deteriorated since the advent of the COVID-19 pandemic and has fallen deeper than that of its comparable banking industry peers.

At the same time, KCB is facing operating environment risks as the Kenyan economy is tipped to grow at a slower rate than last year.

Moreover, analysts at Fitch expect the Central Bank of Kenya (CBK) to tighten monetary policy further from prevailing inflationary pressures.

In the year ended December 2021, KCB posted a 74 per cent growth in net profit to Ksh.34.1 billion on rising operating income.

The bank’s asset quality was however tainted by a 27.2 per cent jump in gross non-performing loans (NPLs) to Ksh.122.9 billion.

In the quarter ended March 2022, KCB profit was up by 53 per cent to Ksh.9.8 billion on continued income from operations.

Asset quality was still an Achilles heel for the group in the period with gross NPLs hitting Ksh.130.9 billion at the end of March.