Fitch maintains Kenya’s banks outlook at ‘B’ with a negative outlook

The agency cited the high volumes of non-performing loans as a significant concern for the country's banking sector. Kenya's banks are grappling with elevated exposure to public sector debt arrears, primarily attributed to delayed government payments to contractors, the East African reports.

“Loan quality has been affected by public sector arrears, where delayed government payments to contractors have forced them to run overdue on existing loans to local banks. As a result, the sector regulatory NPL ratio increased by 170 basis points in the first nine months of 2023 to reach 15 percent at the end of the third quarter of 2023,” said Fitch in its analysis.

This assessment closely follows a similar warning issued by Moody's just two weeks ago, which also revised its outlook on Kenya's lenders to negative from stable. Moody's expressed concerns about the substantial levels of non-performing loans despite the solid profitability and liquidity levels of the banks.

Moody’s noted in its analysis that, “Despite solid economic growth, an array of challenges will weigh on borrowers’ creditworthiness and create difficult operating conditions for banks through 2024.”

The volume of non-performing loans (NPLs) in Kenya's banking sector witnessed a significant increase, rising by Ksh133.6 billion ($912 million) to Ksh621.3 billion ($4.24 billion). This surge pushed NPLs to account for 14.8 percent of the sector's loan book, compared to 13.3 percent in 2022.

Fitch Ratings anticipates that retail loans will be notably affected by a decline in real disposable incomes resulting from recent government tax hikes. The Kenyan shilling also faced challenges, depreciating by 21 percent in 2023, making it the worst-performing currency in the East African region.