GCR reviews Victoria’s rating as non-performing loans rise

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GCR reviews Victoria’s rating as non-performing loans rise

Dr Yogesh Pattni, Managing Director of Victoria Commercial Bank of Kenya. FILE PHOTO | NMG

South African ratings agency GCR has upgraded Victoria Commercial Bank (VCB) long-term issuer rating to BBB-, reflecting the higher volume of non-performing loans in the banking sector from the manufacturing and commercial sectors. .

The Tier 3 lender, whose net non-performing loan ratio stood at 4.8% in June 2022, has, like other banks, seen its lending to customers accelerate this year amid an economic recovery, straining the quality of the asset base.

The lender, noted GCR, however, enjoys a stable funding structure of which two-thirds is in the form of term deposits, but concerns about pressure on capital from increased lending have led to the revision of BBB rating.

“Positively, term deposits were stable, supporting the bank’s GCR stable funding ratio (customer deposits plus long-term borrowings/total funding requirements) of 92% as of June 30, 2022,” said declared GCR.

The bank this year launched a capital-raising campaign to shore up its adequacy ratios in light of the expansion of the loan portfolio.

In June, the lender secured a $10 million (1.2 billion shillings) loan from the Belgian Investment Company for Developing Countries towards Tier 2 capital. The funds, VCB said, would increase its loans to small businesses which in recent years have been cut off from credit by formal lenders due to an increased perception of risk.

In September, the lender also obtained a loan of 20 million dollars (2.4 billion shillings) from the Arab Bank for Economic Development in Africa, intended to be on-lent to projects by private sector actors in Kenya.

Local banks have diversified their funding sources to include development finance institutions and international lenders, in part to help them access foreign currency loans.

The search for new capital was driven by the need to protect their ratios at a time when they are increasing their lending to the private sector, partly in recognition of a growing economy and also due to losses in the market price of government securities. as a consequence of rising global bond yields.

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