According to Moody’s, green bonds will also help banks grow and diversify their lending and funding profiles. Like other East African nations, Kenya is vulnerable to environmental risk, mainly from drought.
Agriculture employs more than 40 percent of Kenya’s total population, rain-fed agriculture comprises 37 percent of the economy’s gross value added in 2017, and the country has a high dependence on hydropower for around 35 percent of its power.
Banks’ asset quality is in turn negatively affected by the knock-on effects on borrowers’ loan repayment capacity in the agricultural sector and power-intensive industries like manufacturing, as well as on consumer lending because of lower disposable incomes.
“Increased green financing will gradually help to address this event risk for banks.Increased green financing will likely spur new environmentally friendly projects for banks to finance, creating opportunities for banks to grow and diversify their loan books,” Moody’s said in a statement issued in Nairobi.
A green bond is a fixed income instrument whose proceeds are used to finance or refinance projects which generate climate or other environmental benefits that conform to green guidelines and standards.
“By issuing green bonds, banks can diversify their funding and investor profiles, and raise funding with maturities beyond five years to finance these projects. At present, Kenyan banks mainly rely on deposits with maturities of less than one year and, to a lesser degree, development finance institutions for funding,” the director of the Kenya Bankers Association Nuru Mugambi said during the launch last week.
Kenya is the third sub-Saharan African country to have guidelines for green bond issuance after South Africa and Nigeria.