credit trends: kenyan banks - rich banks- adapting to a lower... · bmce bank (ba1 stable, ba3)...

Credit Trends: Kenyan BanksAdapting to a lower business growth environment

JULY 2017CHRISTOS THEOFILOU, ASSISTANT VICE PRESIDENT – ANALYST

JEAN-FRANCOIS TREMBLAY, ASSOCIATE MANAGING DIRECTOR

2Banking Sector Credit Trends: Kenyan Banks

Moody’s financial institutions footprint in Africa

Angola Banco Angolano de Investimentos (B1 RUR, b3)

BotswanaLetshego Holdings Limited (Ba3 Stable)

Botswana Development Corporation (Baa2 Stable, b1)

DR of Congo Rawbank (B3 Stable, b3)

Egypt

Bank of Alexandria SAE (B2 Stable, b3)

Banque du Caire SAE (B3 Stable, caa1)

Banque Misr SAE (B3 Stable, caa1)

Commercial International Bank (Egypt) SAE (B3 Stable, b3)

National Bank of Egypt SAE (B3 Stable, caa1)

Ghana GCB Bank Limited (B3 Stable, b3)

Kenya

KCB Bank Kenya Limited (B1 Stable, b1)

Equity Bank Kenya Limited (B1 Stable, b1)

Co-operative Bank of Kenya Limited( B1 Stable, b1)

MauritiusMauritius Commercial Bank Limited (Baa3 Stable, ba1)

SBM Bank (Mauritius) Ltd. (Baa3 Stable, ba1)

MoroccoBMCE Bank (Ba1 Stable, ba3)

Credit du Maroc (Ba1 Positive, ba3)

Nigeria

Access Bank Plc (B1 Stable, b2)

Sterling Bank Plc (B2 Stable, b3)

Bank of Industry (B1 Stable) - GRI

Zenith Bank (B1 Stable, b1)

Guaranty Trust Bank Plc (B1 Stable, b1)

First Bank of Nigeria Limited (B2 Negative, b3)

United Bank for Africa Plc (B1 Stable, b2)

South Africa

ABSA Bank Limited (Baa3 Negative, baa3)

Bidvest Group Limited (Baa3 Negative)

Development Bank of Southern Africa (Baa3 Negative, ba2)

FirstRand Bank Limited (Baa3 Negative, baa3)

Industrial Development Corp. of South Africa (Baa3 Negative, ba2)

Investec Bank Ltd (Baa3 Negative, baa3)

Land and Agricultural Development Bank (Baa3 Negative, ba3)

Mercantile Bank Limited (Ba3 Stable)

Nedbank Limited (Baa3 Negative, baa3)

Real People Investment Holdings (Pty) Ltd (Ca No outlook)

Standard Bank Group Limited (Ba1 Negative)

The Standard Bank of South Africa Limited (Baa3 Negative, baa3)

Tanzania CRDB Bank Plc (B1 Stable, b2)

National Microfinance Bank plc (B1 Stable, b1)

Tunisia Amen Bank (B1 Negative, b3)

Arab Tunisian Bank (Ba3 Stable, b1)

Banque de Tunisie (Ba3 Negative, b1)

Banque Internationale Arabe de Tunisie (Ba3 Negative, b2)

Societe Tunisienne de Banque (B1 Negative, caa3)

As of June 2017, Moody’s rates over 40 FIs across 12 African countries


Kenya’s Growth Continues to Outpace Regional Average

Source: IMF, Moody’s Investors Service

4.3%

5.3%5.1%

3.4%

1.4%

2.6%

3.5%

4.6%

5.9%

5.4%

5.7% 5.8% 5.8%6.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2012 2013 2014 2015 2016 2017F 2018F

Sub-Sharan Afrrican GDP Growth Kenya's GDP Growth

Real GDP Growth Rate for Kenya and The Sub-Saharan African Region


Kenyan Banks’ Dilemma: To lend or not to lend?

Source: Central Bank of Kenya, Moody’s Investors Service

Trends in Kenya’s key interest rates

17.7%

13.6%

6.4%7.1%

10.3%

11.7%

5%

7%

9%

11%

13%

15%

17%

19%

21%

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

364-day TBR Average Lending Rate Average Deposit Rate Inflation Rate Lending Rate Cap


Poll: What is your view on the interest rate caps?

A. The interest rate caps are working and

will remain as they are.

B. The interest rate caps have had

unintended consequences, but I don’t

see them changing.

C. The interest rate caps have had

unintended consequences and will likely

be revised.


Asset Quality has Deteriorated for Kenyan Banks

Source: Central Bank of Kenya, Moody’s Investors Service

4.7%

10.7%

4.5%6.2%

9.1%

17.3%

3.5%

9.3%

2.6%

4.7%

14.5%

7.1%6.6%

13.1%

7.1%

10.4%

8.0%

24.2%

4.9%

9.5%

2.8%

8.3%

3.2%

9.1%

9.5%

0%

5%

10%

15%

20%

25%

30%

2015 2016 Mar-17

Trends in problem loans to gross loans across economic sectors


Business Models Differ For the Three Rated Banks

Source: Banks’ financial statements and investor presentations, Moody’s Investors Service

63%

14%

52%

19%

23%

38%

11%

55%

7%2% 5%2%

4% 3% 1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

KCB Group Equity Bank Co-op Bank

Large Enterprises Consumer SME Micro Enterprises Agriculture

Latest Loan Book Breakdown by Segment


Equity Bank is Most Affected by Recent Challenges

Source: Banks’ financial statements and investor presentations, Moody’s Investors Service

Trends in asset quality and lending rates during 2016 and 1Q 2017

Average Lending Rates

14.8%

11.4%

16.8%

11.5%

15.3%

12.7%

11%

12%

13%

14%

15%

16%

17%

18%

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

KCB Bank Equity Bank Co-op Bank

1.3%

7.9%

4.1%

7.0%

0.8%

4.2%

2.6%

9.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

% Increase in NPLs Since YE2015 Current NPLs to Gross Loans (March 2017)

KCB Bank Equity Bank


Equity Bank Nonetheless Reacted and Has High Buffers

Source: Banks’ financial statements, Moody’s Investors Service

24.7%

39.1%

28.7%

91.2%

72.3%

87.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Liquid Banking Assets / Tangible Banking Assets Net Loans to Deposits

Latest Key Financial Indicators for the Three Rated Kenyan Bank

3.5%

5.5%

4.3%

6.1%

3.5%

5.8%

0.7%

2.1%

0%

1%

2%

3%

4%

5%

6%

7%

Net Income % Average Total Assets Pre Provisions Income % Average Total Assets

KCB Bank Equity Bank Co-op Bank b1-rated global peers


Poll: Do you believe a banking sector consolidation

trend will continue amongst banks?

A. No, if anything the number of banks will

grow.

B. Yes, moderately. Some small banks will

need to consolidate to remain viable but

a large number will likely remain in

operation.

C. Yes, Kenya needs a much smaller

number of banks and the regulatory

authorities should take measures to

accelerate the trend.


Some Regional Countries Have Weaker Asset Quality


0%

10%

20%

30%

40%

50%

60%

70%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Botswana DR of theCongo

Ghana Kenya Mauritius Nigeria South Africa Tanzania

NPLs % Gross Loans (latest) (latest) Provisions % NPLs (latest) (RHS)

NPLs/ provisioning coverage is weakening compared to peers


Resilient Profitability to Absorb Rising Credit Losses

0%

5%

10%

15%

20%

25%

30%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Botswana DRC Ghana Kenya Mauritius Nigeria South Africa Tanzania

RoAA RoAA - global median RoAE - global median (RHS) RoAE (RHS)

Kenyan banks show relative profitability strength compared to SSA peers



Solid Capital to Absorb any Unexpected Losses

0%

5%

10%

15%

20%

25%

Botswana DRC Ghana Kenya Mauritius Nigeria South Africa Tanzania

Bank Capital % Assets (latest) Regulatory Capital % RWAs (latest)

Kenyan banks show relative capital strength compared to SSA peers



Appendix


Moody’s Related Research

Press Release

Moody's assigns first-time ratings to Kenya's Equity Bank and Co-op Bank

Credit Opinions

KCB Bank Kenya Limited – Semiannual Update, March 2017 (1064565)

Co-operative Bank of Kenya Limited – First Time Ratings, June 2017 (1080563)

Equity Bank of Kenya Limited – First Time Ratings, July 2017 (1079231)

Other Research

Sub-Saharan Africa: Foreign-currency shortages are subsiding but will take time to overcome, May

2017 (1070939)

Banks – Africa: 2017 Outlook – Stable: Resilient Earnings, High Capital Buffers and Ample Local

Currency Funding Counterbalance High Asset risks, December 2016 (1053446)

KCB Bank Kenya and CRDB Bank (Tanzania): Peer Comparison – Strengths Are Similar But

Stronger Operating Conditions Lift KCB’s Standalone Credit profile, October 2016 (1038290)

Banking System Overview, February 2016 (1014070)

Banks - Africa - Gaps in Banking Regulation and Supervision Are Progressively Being Addressed

(1053880)

https://www.moodys.com/research/Moodys-assigns-first-time-ratings-to-Kenyas-Equity-Bank-and--PR_368628

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1064565

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1080563

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1079231







Moody’s Rates KCB Bank Kenya at B1/ Stable

Source: KCB Bank Kenya Limited and KCB Group, Moody’s Investor Services

KCB Bank Kenya

Local Currency Deposits B1/ NP

Baseline Credit Assessment b1

Outlook Stable

Counterparty Risk Assessment Ba3(cr)/ NP(cr)

Foreign Currency Deposits B2/ NP

6.2% 15.4%3.9%

6.9% 25.6%0%

5%

10%

15%

20%

25%

30%

35%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Asset Risk:Problem Loans/

Gross Loans

Capital:Tangible Common

Equity/Risk-WeightedAssets

Profitability: NetIncome/ Tangible

Assets

Funding Structure:Market Funds/

Tangible Banking Assets

Liquid Resources: LiquidBanking Assets/Tangible

Banking Assets

Solvency Factors (LHS) Liquidity Factors (RHS)

KCB Bank Kenya Limited (BCA: b1) Median b1-rated banks

KCB compares favorably with b1-rated peers


Moody’s Rates Equity Bank Kenya Limited at B1/ Stable

Source: Equity Bank Kenya Limited and Equity Group Holding Limited, Moody’s Investor Services

Equity Bank Kenya



Outlook Stable



Equity Bank compares favorably with b1-rated peers

6.1% 11.2%

4.2%

11.7% 35.6%0%

5%

10%

15%

20%

25%

30%

35%

40%

0%

2%

4%

6%

8%

10%

12%


Gross Loans




Assets

Funding Structure: MarketFunds/ Tangible

Banking Assets


Banking Assets


Equity Bank Kenya Limited (BCA: b1) Median b1-rated banks


Moody’s Rates Cooperative Bank of Kenya at B1/ Stable

Source: Co-operative Bank of Kenya, Moody’s Investor Services

Co-op Bank Kenya



Outlook Stable



Co-op Bank compares favorably with b1-rated peers

4.2% 16.3%3.3%

6.6% 26.5%0%

5%

10%

15%

20%

25%

30%

35%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


Gross Loans




Assets

Funding Structure: MarketFunds/ Tangible

Banking Assets


Banking Assets


Cooperative Bank of Kenya Limited (BCA: b1) Median b1-rated banks


Banks have chosen different responses to lending caps

Year-on-Year Change in Balance Sheet as at end March 2017

12%

16%

5%

18%

-9%

162%

7%

15%

-13%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Customer Deposits Growth Net Loans Growth Government Securities Growth



Year-on-Year Change in Profitability During Q1 2017

-2%

8%

0%5%

-38%

-3%

-22%

26%

-9%-5%

65%

-12%

-2% -2% -2%

5%

20%

-6%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Net Interest Income Non-Interest Income Total OperatingIncome

Operating Expenses Loan Loss Provisions Net Income


Equity Bank most impacted but partly buffered by improved NIR and Efficiency


Christos Theofilou, CFA

AVP-Analyst

Tel: +357.25.693.004

[email protected]

Jean-Francois Tremblay

Associate Managing Director

Tel: +44.20.7772.5653

[email protected]

mailto:[email protected]

mailto:[email protected]


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