OREANDA-NEWS. Fitch Ratings has affirmed CfC Stanbic Bank Limited's (CfC Stanbic) Long-term Issuer Default Rating (IDR) at 'BB-'. The Outlook has been revised to Negative from Stable. A full list of rating actions is at the end of this rating action commentary.

The revision of the Outlook reflects the Negative Outlook on the Kenyan sovereign rating (BB-/Negative) and Fitch's opinion of the degree of transfer and convertibility risks captured in Kenya's Country Ceiling of 'BB-', which acts as a constraint on the bank's IDRs and Support Rating (SR).

KEY RATING DRIVERS

IDRS, SR AND NATIONAL RATINGS

CfC Stanbic's IDRs, SR and National ratings are driven by a moderate probability of support from the bank's ultimate parent, South Africa-based Standard Bank Group (SBG; BBB-/Stable), which owns 60% of the bank.

Although outside of the parent's core market of South Africa, we view CfC Stanbic as a strategically important subsidiary of SBG. The SR considers SBG's strong ability to support CfC Stanbic and the small size of the bank relative to SBG (1.5% of total assets and 2.5% of net income). It also reflects a high propensity to support, given a public commitment by SBG in its annual report to support certain strategic subsidiaries (including CfC Stanbic) and SBG's stated pan-African strategy. Without the presence of Kenya's country risk considerations, Fitch would rate CfC Stanbic one notch below SBG.

CfC Stanbic's National Ratings reflects Fitch's view of the bank's relative creditworthiness within Kenya. As there is no change in the bank's creditworthiness relative to domestic peers, Fitch maintains the Stable Outlook on CfC Stanbic's National Ratings. .

VIABILITY RATING (VR)

CfC Stanbic's VR considers the challenging operating environment in Kenya, given increased risks in certain key industry sectors and the high interest rate environment. The VR also considers CfC Stanbic's sound risk framework compared with peers and a good corporate and investment banking franchise, both of which benefit from the bank's close links with SBG. The VR further reflects the bank's rapid loan growth and deteriorating asset quality (impaired loan ratio of 4.5% at end-2015 from 2.9% at end-2013), as well as still sound earnings metrics, albeit with some reliance on more volatile sources of income, including FX trading. The VR also considers adequate capitalisation (Fitch core capital ratio of 16.9% at end-2015) and liquidity, which help to mitigate concentrations on both sides of the balance sheet.

RATING SENSITIVITIES

IDRS, SR AND NATIONAL RATING

A downgrade of the Kenya's sovereign rating accompanied by the downward revision of the Country Ceiling would result in a downgrade of CfC Stanbic's Long-Term IDR and the SR.

The IDRs and SR are driven by support available from the CfC Stanbic's parent SBG and therefore are also sensitive to the parent's ability and propensity to support the subsidiary. However, any potential downgrade of CfC Stanbic's Long-Term IDR and SR would require a multi-notch (more than two notches) downgrade of the parent, assuming no changes in Fitch's view of the strategic importance of CfC Stanbic to the parent.

An upgrade of the Long-Term IDR is unlikely given the Negative Outlook on the Kenyan sovereign rating.

The National Ratings could be downgraded only in case there is material weakening of SBG's ability or propensity to provide support to CfC Stanbic. Fitch's views this as unlikely at present.

VR

CfC Stanbic's VR is sensitive to further weakening of the operating environment leading to a sharp deterioration in asset quality, affecting earnings and ultimately eroding the capital base. Asset quality deterioration may also result from recent rapid loan growth.

We view an upgrade of the VR as unlikely at present as it would require an improvement in the operating environment coupled with one or more of the following; a larger capital base, more stable sources of earnings as well as a slowdown of the rising trend in non-performing loans and stronger reserve coverage.

The rating actions are as follows:

CfC Stanbic Bank Limited

Long-term IDR affirmed at 'BB-'; Outlook revised to Negative from Stable

Short-term IDR affirmed at 'B'

Support Rating affirmed at '3'

Viability Rating affirmed at 'b'

National Long-term Rating affirmed at 'AAA(ken)'; Outlook Stable

National Short-term Rating affirmed at 'F1+(ken)'