PLAN B

Banks seek refuge in government securities as bad loans increase

In Summary

• Equity Bank chief executive James Mwangi said that government securities accounted for 54 per cent of the bank’s loan book.

• Almost all banks recorded an increase in nonperforming loans 

Equity Bank
Equity Bank

Kenya's top banks reaped heavily from government securities last year, cushioning them from rising non performing loans as borrowers struggle to repay.

Full year results of seven tier one banks for the period ended December 31, 2018 shows, most lenders increased investments in government securities with Equity Bank leading the pack with Sh161 billion up from Sh128 billion in 2017.

On Tuesday, Equity Bank chief executive James Mwangi said that government securities accounted for 54 per cent of the bank’s loan book.

Although the lender recorded a slight growth in interest earning from customer loans to the tune of Sh25.4 billion from Sh24.9 billion in 2017, nonperforming loans soared to Sh24.02 billion from Sh17.98 billion, a  33.6 per cent growth.

It however earned Sh15.1 billion interest from government securities during the year under review up from Sh12.2 billion, a 23.7 per cent growth.

‘’The government has now taken a significant part of balance sheet of the bank, above 50 per cent compared to customer loan book,’’ Mwangi said.

Kenya Commercial Bank Group KCB),  which is the country's top bank with an asset value of Sh713.4 billion invested Sh79.36 billion in government securities in 2018 up from Sh63.51 billion the previous financial year.

The investment saw the lender earn an interest Sh12.98 billion up from Sh12.36 billion in 2017.

Even though it recorded a 3.7 per cent growth in interests from loans and advances to Sh52.7 up from Sh50.8 billion, the lender suffered Sh14.1 billion in net nonperforming loans compared to Sh12 billion same period in 2017.

Last week, KCB Group chief executive Joshua Oigara warned that banks are becoming more conscious in their lending, with most opting for the more secure government securities to the risky consumer lending.

‘’The IFRS9 accounting standard is pushing banks to provide in advance for loans. This has seen more turn to government securities, leaving small room for the private sector. Results shows KCB is balancing to meet demands from both,’’ Oigara said.

Barclays Bank Kenya’s investments into government securities in 2018 grew by 8.1 per cent to Sh63.2 billion up from Sh 58.4 billion in 2018.

This saw the bank’s earnings from the venture grow 27.8 per cent to hit Sh7.3 billion compared to Sh5.7 billion in 2017.

The loan book and advances almost grew thinly to Sh21.5 billion up from Sh21.2 billion in 2017.

Consequently, the bank’s net non performing loans grew by 13 per cent to Sh4.2 per cent, demonstrating a trend where borrowers struggled to repay during the year under review.

Other lenders that sought refuge in government securities includes Cooperative Bank of Kenya which invested Sh49.7 billion up from Sh43.9 billion in 2017 to earn Sh9.7 billion, 20 per cent increase.

The bank’s net nonperforming loan grew 30.2 per cent to hit Sh15.2 billion compared to Sh11.7 billion in the previous year.

Although Standard Chartered Bank invested lower capital in government papers in 2018, it reaped Sh12.4 billion in interests, 9.9 per cent more compared to 2017 when it invested Sh103.4 billion.

Last year, the lender invested 94.7 billion. Earnings from loans declined by three per cent to Sh13.1 billion compared to Sh13.5 billion in 2017. The lender’s net bad loan grew 22.5 per cent to hit Sh13.8 billion.