Moody's Investors Service (Moody's) has assigned first-time B1/Not Prime global local-currency deposit ratings to Equity Bank Kenya Limited (Equity Bank) and the Co-operative Bank of Kenya Limited (Co-op Bank). Moody's has also assigned both banks Counterparty Risk (CR) Assessments of Ba3(cr)/Not Prime(cr), global foreign-currency deposit ratings of B2/Not Prime and b1 baseline credit assessments (BCAs) and Adjusted BCAs. On the Kenyan national scale, Moody's has assigned deposit ratings of Aa1.ke/KE-1 to Equity Bank and Aa2.ke/KE-1 to Co-op Bank. All long-term global scale deposit ratings carry a stable outlook.
Equity Bank's and Co-op Bank's B1 global local-currency long-term deposit ratings are fully aligned with the B1 (Stable) rating of the Kenyan government. Both banks reach this rating level solely based on their standalone strength, as indicated by their b1 standalone BCAs, Moody's highest ratings in Kenya.
More specifically, the primary drivers and key similarities of Equity Bank's and Co-op Bank's standalone credit profiles are their strong loss-absorbing and liquidity buffers to withstand their respective weakening asset quality in the context of a difficult operating environment. Among the challenges facing the banks, Moody's notes that a seasonal drought has affected agriculture and power generation, elections have delayed investments and lending rate caps have constrained banks' flexibility to price risks.
Despite Equity Bank's lending focus on small- and mid-sized enterprises, which has been challenged by the operating environment, Moody's notes Equity Bank's defensive response by meaningfully reducing loans and shifting its resources towards the purchase of high-yielding government securities.
In contrast, Moody's expects Co-op Bank to pursue a more aggressive loan growth strategy despite the challenging operating environment following a period of internal reorganisation and strategic transformation that has given the bank new tools and confidence to increase market share. Nevertheless, Co-op Bank's focus on stronger borrowers, such as Savings and Credit Co-operative Organisations and salary-assigned government personnel, should help contain asset quality pressure arising from pocket exposures to weakening sectors, such as in the trade sector.
Although Equity Bank and Co-op Bank are systemically important and Moody's attaches a very high probability of government support in case of need, their ratings do not benefit from any uplift because their BCAs are already at the government's rating level.
