By JAMES ANYANZWA

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Global rating agency Fitch has downgraded KCB Bank’s creditworthiness from stable to negative.

This is informed by the expected pressure on the lender’s loan repayment capacity due to the adverse effects of the Covid-19 pandemic and the possibility of limited State support due to the country’s deteriorating economic conditions.

“Fitch Ratings has revised the outlook on KCB Bank Kenya’s Long-term Issuer Default Rating (IDR) of ‘B+’ and National Long-Term Rating of ‘AA (ken)’ to Negative from Stable,” the agency said in a statement dated July 6, 2020.

“The negative outlook on the Long-Term IDRs reflect expected pressure on KCB Group’s and KCB Bank’s creditworthiness stemming from the economic impact of coronavirus pandemic and the resulting financial profile impact,” said the rating agency.

KCB’s stock on the Nairobi Securities Exchange (NSE) declined 1.14 percent to Ksh34.65 ($0.34) per share on Monday (July 6).

Last month, the agency revised the Outlook on Kenya's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at 'B+', based on the premise that the coronavirus shock will drive a sharp economic slowdown and deterioration in the budget deficit and government debt-to-gross domestic product (debt/GDP) ratio in 2020, against a background of a weak track record of fiscal consolidation.

Fitch forecasts Kenya's GDP growth to slow to one percent this year, as the slowdown in global trade and services impact the country’s export and tourism sectors.

“We expect more than a 30 percent fall in Kenya's agribusiness exports, including horticulture, tea and coffee, which accounted for approximately 3 percent of GDP in 2019,” according to the agency.

“Likewise, we expect a 20 percent to 40 percent fall in travel receipts and remittances, which had risen to comprise a total 4.3 percent of GDP in 2019.”

According to Fitch, KCB Group’s viability rating reflects a challenging operating environment and weak asset quality balanced against a leading domestic franchise and strong profitability, capitalisation, and funding and liquidity.

Fitch noted that KCB Group’s asset quality has weakened following consolidation of National Bank’s problem loan book.

The regional lender recorded eight percent growth in net profit during the three months to March 31, 2020 helped by the improved performance of its regional subsidiaries and the newly acquired National Bank of Kenya (NBK).

The group’s profit after tax rose to Ksh6.26 billion ($62.6 million) from Ksh5.77 billion ($57.7 million) in the same period last year.

However, the bank, which has operations in Kenya, Uganda, Tanzania, Rwanda, Burundi and South Sudan, says its growth outlook in the whole of this year is not promising largely due to the expected impact on revenues by the Covid-19 pandemic.

“We expect performance in the next two quarters to be impacted as the crisis is affecting the ability of customers to service their loans and reducing the demand for credit. We have taken measures to conserve out capital, manage costs and keep a keen eye on liquidity,” said Joshua Oigara, the Group Chief Executive.