Kenya’s annual inflation is anticipated to ease to 6.8% in 2024, aligning with a projected trend in the monetary policy rate, as forecasted by Fitch in its African Banks Outlook 2024.

Having peaked at 9.2% in March 2023, the Central Bank of Kenya responded by raising the Central Bank rate by 175 basis points in the first half of 2023, reaching 10.5%, the highest level in the past seven years.

Fitch predicts that Kenyan banks will sustain robust pre-impairment operating profits in the context of a higher interest-rate environment, providing resilience against potential increases in the cost of risk.

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Inflation Forecast: A Prognosis of 6.8% for 2024

The firm emphasizes that strong economic growth (real GDP growth of 5.5% in 2024) and moderate credit penetration will support healthy loan growth.

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Anticipating a rise in the bad loans ratio by the end of 2023 due to delayed repayments and increased debt-servicing costs, Fitch expects a reversal in this trend in the second half of 2024. Retail loans may face pressure from high interest rates and reduced real disposable income following recent tax hikes.

Fitch notes that larger banks stand to benefit from overseas operations due to the depreciation of the shilling, and it expects banks to maintain high capital buffers in light of asset quality and operating environment risks.

Eric Dupont, Head of African Banks, acknowledges the significant challenges African banks will face in 2024, including sovereign debt risks, potential currency depreciation, and rising impairments. However, resilience is evident, supported by high commodity prices.

African Banking Landscape: Challenges, Resilience, and Rating Distribution

Over 70% of African banks’ Long-Term Issuer Default Ratings (IDRs) fall within the highly speculative ‘B’ range, reflecting a material default risk with a limited margin of safety. Three-quarters of these ratings are driven by Viability Ratings (VRs), with 86% aligning with their respective sovereigns.

While 74% of rating Outlooks are Stable, 26% are Negative, with sovereign downgrades posing potential risks for bank rating downgrades. African banks generally do not exceed sovereign ratings according to Fitch’s criteria.

Kenya’s annual inflation is anticipated to ease to 6.8% in 2024, aligning with a projected trend in the monetary policy rate, as forecasted by Fitch in its African Banks Outlook 2024.

Having peaked at 9.2% in March 2023, the Central Bank of Kenya responded by raising the Central Bank rate by 175 basis points in the first half of 2023, reaching 10.5%, the highest level in the past seven years.

Fitch predicts that Kenyan banks will sustain robust pre-impairment operating profits in the context of a higher interest-rate environment, providing resilience against potential increases in the cost of risk.

The firm emphasizes that strong economic growth (real GDP growth of 5.5% in 2024) and moderate credit penetration will support healthy loan growth.

Anticipating a rise in the bad loans ratio by the end of 2023 due to delayed repayments and increased debt-servicing costs, Fitch expects a reversal in this trend in the second half of 2024. Retail loans may face pressure from high interest rates and reduced real disposable income following recent tax hikes.

Fitch notes that larger banks stand to benefit from overseas operations due to the depreciation of the shilling, and it expects banks to maintain high capital buffers in light of asset quality and operating environment risks.

Eric Dupont, Head of African Banks, acknowledges the significant challenges African banks will face in 2024, including sovereign debt risks, potential currency depreciation, and rising impairments. However, resilience is evident, supported by high commodity prices.

Over 70% of African banks’ Long-Term Issuer Default Ratings (IDRs) fall within the highly speculative ‘B’ range, reflecting a material default risk with a limited margin of safety. Three-quarters of these ratings are driven by Viability Ratings (VRs), with 86% aligning with their respective sovereigns.

While 74% of rating Outlooks are Stable, 26% are Negative, with sovereign downgrades posing potential risks for bank rating downgrades. African banks generally do not exceed sovereign ratings according to Fitch’s criteria.