Commercial banks stock of bad loans rise to a 13.1 percent high

Commercial banks stock of bad loans rise to a 13.1 percent high

The quality of assets inside Kenyan banks has continued to deteriorate this year with the stock of bad loans held surging to 13.1 percent in April.

New data from the Central Bank of Kenya (CBK) shows the stock of gross nonperforming loans moved up from 12.5 percent in March and a flat 12 percent in February.

The acceleration of bad loans is largely attributable to loan defaults from bank clients as the economy continues to grapple with the slowdown arising from the Covid-19 pandemic.

Moreover, the rise in defaults is against recent evasive action by the banking sector which has seen billions in current loans restructured as a risk mitigation strategy.

According to the CBK, total restructured loans at the end of April stood at Ksh.273.1 billion or an equivalent 9.6 percent of the existing industry loan book.

Personal and household loans restructured between March and April stood at Ksh.102.5 billion or a representative 39,725 loan accounts, an equivalent 13.1 percent of the personal/household loans portfolio.

Restructures to 10 other sectors including manufacturing, tourism, trade, energy, transport and communication stood at Ksh.170.6 billion or six percent of the loan book covering 45,537 loan accounts.

The rising dent to asset quality is evident in the recently published quarterly financial results by bank which are indicative of higher bad loan stocks and greater provisioning for anticipated credit default losses.

For instance KCB Group stock of gross non-performing loans rose to Ksh.66.2 billion in three months to March from Ksh.63.4 billion in December while loan loss provisioning increased to Ksh.2.9 billion from Ksh.1.2 billion in March 2019.

Other banks reporting higher bad loans stocks in the period included NCBA, Stanbic Bank and the Diamond Trust Bank (DTB).

The higher provisioning for the bad loans had led to additional businesses costs with the Co-operative Bank for instance reporting a 20.6 percent hike in operating expenses in the first quarter of the year to Ksh.7.3 billion on bad loans cover.Research from the Kenya Bankers Association (KBA) shows the industry’s gross non-performing loans rate is set to hit 14 percent on 2020 with the loan to deposit ratio falling by more than 10 percent.Assets growth is meanwhile seen contracting by up to 26.5 percent while industry capital adequacy is projected to decline by an average 2.5 percent.The expected fall in new loans is expected to put brakes on recent growth in private sector credit which had begun rising steadily since the repeal of interest rate […]

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