Kenya: Moody's says Imperial Bank closure undermines trust in small banks

Oct 21, 2015

The rating agency says small banks could suffer a hike in their interbank rates.

There will be a decline in market confidence towards small and midsize Kenyan banks following the closure of Imperial Bank, according to rating agency Moody's.

Last month, Kenya's central bank has called in a government agency to take control of Imperial Bank Ltd, citing "unsafe or unsound business conditions" and possible "malpractices".

Imperial Bank is the second bank in Kenya to be put under management since August, when Dubai Bank Kenya was put in receivership after liquidity problems.

The central bank said last week it was ready to provide "adequate liquidity" to the country's banking system, and "stands ready to use all instruments at its disposal".

It added the case of Imperial Bank being put in receivership "does not present a systemic concern for the sector".

However, Moody's said in its latest report that small banks could suffer a hike in their interbank rates as their larger counterparts take caution to reduce their level of exposure.

"We expect that the wider systematic implications of Imperial Bank's failure will be limited, although we do see a high likelihood of tougher funding conditions... This may include both deposit withdrawals and a hike in interbank rates while their ability to offer correspondent banking related services would be impaired," Moody's said in a statement.ADNFCR-2976-ID-801803642-ADNFCR