Flash Report /

Kenya: Coronavirus case worsens country's risk profile

  • First confirmed case of coronavirus in Kenya; public events cancelled

  • Banks set to suffer from asset quality weakness

  • Coronavirus disruption adds to the country's basket of risks

Faith Mwangi
Faith Mwangi

Equity Research Analyst, Financials (East Africa)

Tellimer Research
13 March 2020
Published byTellimer Research

The Ministry of Health yesterday confirmed a coronavirus (COVID-19) case in Nairobi – the first to be reported in Kenya. The Kenyan citizen who tested positive had travelled back to Nairobi from the US via the UK on the 5 March. The government has swiftly moved to ban all public events.

Thus far, the impact of coronavirus has been limited to imports, with cargoes delayed and losses for traders. However, the discovery of the disease in Kenya worsens the country's risk profile, with a likely further impact on food prices that had already been rising as a result of the pressure on imports. 

The NSE All Share Index (NASI) has shed 15% YTD. Although this means Kenya actually compares favourably with other frontier equity markets, we believe the confirmation of a local coronavirus case will see stock prices weaken even further. 

We expect banking stocks to be hard hit, with asset quality set to remain under pressure on account of:

  1. Consumers coming under pressure from increasing prices;
  2. The trade segment continuing to face strain, as imports are delayed and travel continues to be restricted;
  3. Pressure on the economy, as coronavirus management takes centre stage, with measures to boost economic growth de-prioritised. 

This is in addition to the pre-existing asset quality risks, which include:

  1. The locust infestation, which will affect the agricultural sector, the country’s largest contributor to GDP. Swarms are reportedly closing in on south-west Kenya.
  2. Declining real estate prices. There has been a notable decline in house prices and rents, putting pressure on real estate, and related sectors. 
  3. The government's failure to promptly pay suppliers. The World Bank estimated the government's pending bills accounted for an estimated 0.7% of GDP at end-FY 18/19. 

A relative beneficiary of these uncertain times could be Safaricom, whose role as a provider of essential services in the areas of money transfers/payments and communications technology makes it relatively resilient to these risks.