(Nairobi) – Fitch Ratings has affirmed Stanbic Bank Kenya’s (SBK) Long-Term Issuer Default Rating (IDR) at ‘B’ with a stable outlook, reflecting the bank’s solid financial position despite challenges in the broader banking sector.
Stanbic Bank Kenya’s Long-Term IDR rating of ‘B’ is driven by its inherent creditworthiness, as represented by its viability rating of ‘b’. The stable outlook mirrors the same outlook on Kenya’s Long-Term IDRs, with the bank’s rating one notch above that of Kenya’s sovereign debt. This indicates that Stanbic Bank Kenya is expected to maintain its capacity to meet its obligations even in the event of a sovereign default, without government restrictions on its operations.
The bank’s national long-term rating stands at ‘AAA (ken)’ — the highest achievable rating on Kenya’s national scale — which reflects potential support from its parent, Standard Bank Group Limited. This support is one of the key factors that underpin the bank’s rating. Despite this, Fitch noted that the banking sector in Kenya is facing challenges, including high non-performing loans (NPLs) and rising risks to capitalisation due to the government’s heavy debt exposure.
The Kenyan banking sector, overall, continues to face pressure from high interest rates and large public-sector arrears. These factors have contributed to the high NPL ratio of 16.7% reported in August 2024. The banking sector has also felt the impact of Kenya’s recent sovereign downgrade to ‘B-/Stable’ status, as the country holds a substantial amount of government debt securities that pose risks to the sector’s capitalisation.
Stanbic Bank Kenya holds a modest domestic market share of 6.7% in system assets as of the first half of 2024. However, the bank maintains a strong franchise through its corporate and investment banking services, leveraging client relationships fostered by its position as part of a major pan-African banking group. The bank also enjoys a solid revenue diversification model, with non-interest income accounting for 38% of operating income in the same period.
The bank’s exposure to government debt is moderate, with sovereign risk exposure at 108% of Fitch Core Capital (FCC), down from 180% in 2022, reflecting the bank’s cautious approach to sovereign debt. Additionally, Stanbic Bank Kenya has a lower-risk lending profile compared to its peers, focusing on prime local corporates, which are better positioned to withstand the current challenging economic environment.
Stanbic Bank Kenya’s impaired loans ratio stood at 9.5% by mid-2024, unchanged from the previous year. Its coverage of impaired loans was 75%, with collateral coverage mitigating risks. Despite a relatively high level of impaired loans, the bank’s conservative risk appetite ensures that its ratio remains lower than the sector average. Operating returns on risk-weighted assets for the first half of 2024 were an annualised 5.1%, reflecting a robust buffer against potential loan impairments.
The bank’s regulatory capital ratios comfortably exceed minimum requirements, and Stanbic Bank Kenya aims to maintain a buffer of at least 200 basis points. Fitch views the bank’s strong pre-impairment operating profit and high FCC ratio as sufficient to absorb potential credit losses and market risks, particularly in light of the sovereign default risks, while maintaining solvency without needing extraordinary support from its parent company.
In terms of funding, Stanbic Bank Kenya’s customer deposits account for 83% of total liabilities, with a high proportion of current and savings accounts, which enhances the stability of its funding base. The bank’s liquidity coverage — both in Kenyan shillings and foreign currency — remains strong, further supporting its financial resilience.