KCB Group’s financial health will take a hit after its acquisition of struggling National Bank of Kenya (NBK), a rating agency has warned.
Moody’s, however, noted that the deterioration of KCB’s credit position would be temporary, with the lender’s profitability and funding profiles improving in the medium-term.
In an issuer comment, the American rating agency said NBK’s high stock of problem loans and low capital levels would immediately weaken KCB’s financial position as the lender is forced to absorb the bad loans and set more money aside to cushion against risks of loss.
NBK’s low capitalisation will also lead to a slight deterioration of KCB’s capital adequacy, although Moody’s expect them to remain above regulatory requirements and that of global peers over the transition period.
“Although acquiring NBK would be immediately credit negative because of NBK’s high stock of problem loans and low capital levels would weaken KCB Group’s financial position, KCB entities’ profitability and funding profiles would strengthen over the following two to three years, outweighing the short-term effects,” said Moody’s of the listed bank.
KCB declined to comment on Moody’s assessment.
Moody’s projected the group’s fortunes to improve over the next two to three years as it integrates a large amount of government deposits on NBK’s balance sheet of Sh58 billion or 20 per cent of the system’s government deposits based on 2017 data. The combined entity, estimated Moody’s, will hold around 62 per cent of the Government deposits.
These, noted Moody’s, will reduce KCB’s overall funding costs.