Fitch Ratings has downgraded three Kenyan commercial banks' and two bank holding companies' (BHCs) Long-Term Issuer Default Ratings (IDRs) to 'B' from 'B+'.
The Outlooks are Stable. A full list of rating actions is below.
The rating actions follow the downgrade of Kenya's Long-Term IDRs to 'B' from 'B+' on 14 December 2022 (see 'Fitch Downgrades Kenya to 'B'; Outlook Stable' at www.fitchratings.com).
The downgrades of the IDRs of KCB Group PLC, KCB Bank Kenya Limited, NCBA Group PLC and NCBA Bank Kenya Plc are driven by the downgrade of their Viability Ratings (VRs) to 'b' from 'b+', which reflects our view that the issuers' standalone credit profiles are closely linked to that of the sovereign. The downgrade of KCB Bank Kenya Limited and NCBA Bank Kenya Plc, both domestic systemically important banks, is also driven by the downgrade of their Government Support Ratings (GSRs) to 'b' from 'b+' due to the Kenyan authorities' weaker ability to provide support in case of need.
The downgrade of the IDRs of Stanbic Bank Kenya Limited (SBK) is driven by the downgrade of its Shareholder Support Rating (SSR) to 'b' from 'b+' as a result of the downgrade of Kenya's Country Ceiling to 'B' from 'B+'. SBK's VR is affirmed at 'b'.
The issuers' National Ratings are unaffected by the rating actions and may be reviewed if our National Rating equivalency analysis results in different relative creditworthiness across Kenyan issuers.
Key Rating Drivers
The Long-Term IDRs of KCB Group PLC, KCB Bank Kenya Limited, NCBA Group PLC, NCBA Bank Kenya Plc and SBK are driven by their standalone creditworthiness, as expressed by their 'b' VRs.
KCB Bank Kenya Limited and NCBA Bank Kenya Plc's Long-term IDRs are also underpinned by government support, as expressed by their GSRs of 'b', reflecting the banks' systemic importance. SBK's Long-Term IDR is also underpinned by shareholder support from Standard Bank Group Limited (BB-/Stable) as expressed by its SSR of 'b'.
VR
The downgrades of the VRs of KCB Group PLC, KCB Bank Kenya Limited, NCBA Group PLC and NCBA Bank Kenya Plc to 'b' from 'b+' reflect Fitch's view that their standalone credit profiles are constrained by the sovereign rating due to their high sovereign exposure relative to capital and the concentration of their operations in Kenya. Sovereign exposure is primarily through holdings of Kenyan sovereign debt securities, which as a percentage of Fitch Core Capital (FCC) at end-3Q22 was 129% for KCB Group, 284% for NCBA Group and 149% for SBK.
GSR
The downgrade of NCBA Bank Kenya Plc's and KCB Bank Kenya Limited's GSRs to 'b' from 'b+' reflects the authorities' weaker ability to provide support, if required, as indicated by the sovereign downgrade. Fitch believes that the authorities have a high propensity to support the wider banking system. However, the authorities' ability to support banks is constrained by Kenya's limited financial flexibility, as captured by its Long-Term IDR of 'B'.
SSR
The downgrade of Stanbic Bank Kenya's SSR to 'b' from 'b+' follows the downgrade of Kenya's Country Ceiling. Our assessment of SBG's propensity to provide support to SBK remains unchanged.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A further sovereign downgrade could result in a downgrade of the Long-Term IDRs and VRs of the commercial banks and BHCs. Absent of a sovereign downgrade, downside pressure on ratings could result from greater-than expected asset-quality pressure, particularly if this results in a marked weakening in earnings and capitalisation.
A downgrade of KCB Bank's and NCBA Bank's GSRs would most likely result from a downgrade of Kenya's sovereign rating.
SBK's SSR is sensitive to a weakening in SBG's ability or propensity to provide support. This would most likely result from a downgrade of SBG's Long-Term IDR. SBK's SSR is also sensitive to a downgrade of Kenya's Country Ceiling, most likely triggered by a downgrade of Kenya's sovereign rating.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upside is limited by the constraint on the commercial banks' and BHCs' Long-Term IDRs and VRs by the sovereign rating.
An upgrade of KCB Bank's and NCBA Bank's GSRs would most likely result from an upgrade of Kenya's sovereign rating.
An upgrade of SBK's SSR would require an upgrade of Kenya's Country Ceiling.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
SBK's IDRs are linked to SBG's ratings.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
NCBA GROUP PLC 
