Equity Analysis /

Kenya Commercial Bank: 15% of its loan book restructured as Covid-19 bites, negative

  • KCB's restructured loans account for 45% of total restructured loans by the top seven banks

  • 45% of restructured loans are still unaccounted for, DTB and Equity remain high risk

  • Personal lending, tourism, trade and real estate remain key restructured economic segments

Faith Mwangi
Faith Mwangi

Equity Research Analyst, Financials (East Africa)

Tellimer Research
14 May 2020
Published byTellimer Research

Following the announcement from the Central Bank of Kenya that Kenya’s largest banks had restructured 7% of loans as at April 2020, KCB announced that it has restructured 15% of its loan book (against December FY 19 numbers). This accounts for 45% of the total KES176bn that has been restructured by the top seven banks. Management noted that the restructurings were mainly three-month moratoriums on interest and principal. We see these restructuring numbers as negative. They point to weakness in KCB's asset quality, showing that within a relatively short period, clients have got into difficulties that have made them unable to pay back their loans. We expect the numbers to be higher again in Q2 20, as there have been further job losses and business hours have been restricted in Nairobi. 

So far, of the KES176bn of restructured loans, 55% have been accounted for. ABSA and StanChart account for 5% of the loans that have been restructured, while KCB accounts for 45%. We had expected KCB’s exposure to be significant due to its exposure to personal lending, real estate, trade, and construction. Of the remaining banks that have yet to release their restructured loan numbers, we still see DTB as high risk due to its large real estate and trade exposure. Equity Group does not normally give a clear breakdown of its exposure to various sectors, but from our assessment, the bank is likely to face significant restructuring in the personal and trade segments. Unlike KCB’s and Co-op Bank's retail client bases, which are normally employer scheme based, Equity Group’s retail clients are mostly walk-in customers with whom Equity Group has no employer relationship. Hence it has mainly attracted poorer clients, who are facing significant strain in the current environment.