Fitch Affirms Stanbic Bank Kenya at ‘B’; Outlook Stable
Fitch Ratings has affirmed Stanbic Bank Kenya Limited’s (SBK) Long-Term Issuer Default Rating (IDR) at ‘B’ with stable outlook. The bank viability rating (VR) of ‘b’ has also been affirmed.
In a rating note, Fitch said Stanbic Bank Kenya Long-Term IDR is driven by its standalone creditworthiness, as expressed by its viability rating.
It is also underpinned by a limited probability of shareholder support from Standard Bank Group Limited. The stable outlook, according to Fitch, mirrors those on Kenya’s Long-Term IDRs.
Fitch said Stanbic Bank Kenya’s Long-Term IDR is one notch above the sovereign Long-Term IDRs, reflecting a view that the bank would retain its capacity to service its obligations in case of a sovereign default and that no restrictions would be imposed by Kenya’s government to prevent SBK doing so.
The rating note said this is due to its intrinsic strength and potential shareholder support. Stanbic bank Kenya’s ‘AAA (ken)’ National Long-Term Rating is the highest rating attainable on Kenya’s national scale and considers potential support from the parent.
The banking sector continues to contend with a high non-performing loans (NPLs) ratio of 16.7% in August as a result of high interest rates and the accumulation of large public-sector arrears.
The banking sector has also been affected by the recent downgrade of Kenya (B-/Stable) due to its large holdings of government debt securities at 1.77x banking sector equity in the first half of 2023, which has increased risks to capitalisation.
Stanbic Bank Kenya only has a moderate domestic market share of 6.7% of system assets in the first half of 2024 but holds a strong franchise through its corporate and investment banking business and client relationships fostered by being part of a leading pan-African banking group.
The bank has solid revenue diversification, with non-interest income accounting for 38% of operating income in the first half of the year,
Stanbic Bank Kenya has moderate sovereign exposure relative to Fitch Core Capital of 108%; denominated in Kenyan shillings, down from 180% in 2022 due to the bank risk-averseness.
In addition, Stanbic Bank Kenya focuses on lending to lower-risk customers than peers, including prime local corporates that have greater resilience to the challenging macroeconomic conditions than SMEs or retail customers.
Its impaired loans ratio which settled at 9.5% according to management accounts was unchanged from 2023. Total loan loss allowance coverage of impaired loans was only 75% at the end of first half of 2024 given collateral coverage of impaired loans.
“We expect the impaired loans ratio to remain significantly below the sector average, due to Stanbic Bank Kenya’s more conservative risk appetite”.
Operating returns on risk-weighted assets were an annualised 5.1% in 1H24. Pre-impairment operating profit provides a large buffer to absorb potential loan impairment charges.
Regulatory capital ratios are comfortably above their minimum requirements, and Stanbic Bank Kenya plans to maintain a buffer of at least 200bp.
Fitch believes that the bank’s strong pre-impairment operating profit and high FCC ratio would accommodate the credit losses and market risks emanating from a sovereign default, while preserving solvency independent of extraordinary support from the parent company.
Customer deposits were 83% of total liabilities at end-1H24 and comprise a high 84% of current and savings accounts, which is supportive of funding stability. Shilling and foreign-currency (FC) liquidity coverage is good. FX Stability: CBN Sells 122.671m Dollars to 46 Authorised Dealers
