Global ratings agency Moody’s has given Kenyan lenders a clean bill of financial health, just after two banks went under receivership.
The study which assessed the overall stability of Kenya’s 42 banks, says most lenders have promising growth prospects, although their asset quality faces risks stemming from structural weaknesses, rapid loan growth and rising interest rates.
"Despite a backdrop of global emerging market volatility, we expect Kenya's banks to maintain solid capital and liquidity buffers over the next 12-18 months," said Christos Theofilou, Moody’s Associate Vice President and author of the report.
"Kenyan banks' resilience comes from continual improvements to the regulatory and supervisory environment, as well as its predominantly deposit-funded liability structure and strong profitability," Mr Theofiliu added.
According to the findings of the study, Moody's expects Kenyan banks to maintain strong profitability over the coming quarters, supported by the rising business opportunities.
DOWNWARD MARGIN PRESSURE
However rating agencies had also assigned US banks a positive outlook just before the 2008 collapse of the banking sector.
The rating agency says banks will continue to face downward margin pressure from increased competition and elevated loan-loss provisioning, but adds it expects this to be countered by rising interest rates, cost-cutting and robust business and credit growth.
Moody's also expects banks’ non-performing loans (NPLs) to remain stable at about 5.4 per cent as of September 2015. Moody's forecasts real GDP growth in Kenya of close to 5.7 per cent in 2016, up from 5.5 per cent in 2015, supported by infrastructure spending, which will boost productivity, and a rapidly expanding services sector. In turn, it says this is expected to support credit growth of around 15 per cent and provide increased business opportunities for Kenyan banks.
The Central Bank of Kenya, (CBK) last year placed Imperial Bank and Dubai under receivership following inappropriate banking practices, including lending malpractice.