Kenyan banks’ rebound at risk from global shocks-Fitch

NAIROBI, Kenya April 5-Kenyan banks’ profit recovery may be disrupted by the Russia-Ukraine conflict through second-order risks to the banks’ operating environment, global rating agency Fitch has said.

According to the agency, Kenyan banks’ 2021 results were supported by a significant fall in loan impairment charges from the prior year’s high base, and healthy operating profit growth.

However, Fitch noted that Kenyan banks are not immune from global risks exacerbated by the conflict in Ukraine.

“These combined with any potential disruption due to Kenya’s August general election, threaten to stall a post-pandemic recovery. Credit demand could weaken if operating conditions worsen,” read a research note from the agency.

The agency added that global financing pressures will limit banks’ external financing options and raise the cost of funding.

Even so, it was noted that large Kenyan banks have strong deposit franchises with low reliance on market funding, which will offset risks to funding and liquidity.

Capital buffers will also allow large Kenyan banks to grow and absorb asset-quality risks.

Meanwhile, Fitch expects economic momentum in Kenya to continue but also expects certain sectors to be affected by higher global commodity prices.

“As a net oil importer, Kenya is particularly sensitive to rising energy prices, which directly affects manufacturing and transport. As an agriculturally dependent economy, Kenya is also sensitive to rising fertiliser costs and declining exports,” said the agency.

Further, it  noted that the construction sector, which faces rising input costs and government payment arrears, will continue to be affected while the pandemic-hit tourism sector will take longer to recover.