Restructured bank loans hit Sh1.6tr amid growth in lending

Banks in the country have restructured loans worth Sh1.63 trillion in the last 10 months, giving households and the private sector the much needed relief during the Covid-19 pandemic.

This is more than half (54.2 per cent) of the total banking sector loan book of Sh3 trillion. 

Lending to private sector has also remained stable growing 8.4 per cent in the 12 months to December 2020, as demand recovered with the improved economic activity.

The restructured loans hit a new high in December from Sh1.38 trillion in October (46.5 per cent of the then total banking sector loan book of Sh2.97 trillion).

This was eight months after the Central Bank of Kenya announced emergency measures to provide relief to borrowers, on March 18.

Growth in private sector credit stood at 7.7 per cent in October last year.

The private sector accounts for the lion share of the current restructured loans standing at just above Sh1.29 trillion.

Personal and household loans amounting to Sh333.0 billion (39.6 per cent of the gross loans to this sector) have also had their repayment period extended, Central Bank of Kenya data shows.

Trade accounts for the biggest share of restructured loans (21.3 per cent), followed by manufacturing (20.4 per cent), real estate (15.4 per cent) and agriculture (12.4 per cent).

“These measures have continued to provide the intended relief to borrowers,” CBK governor Patrick Njoroge notes, even as he express optimism of a recovering economy this year from last year's ravages by the pandemic.

Of the Sh35.2 billion that was released by the lowering of the Cash Reserve Ratio (CRR) in March, Sh32.6 billion (92.7 per cent) has been used to support lending, especially to the tourism, trade and transport and communication, real estate, manufacturing and agriculture sectors.

Strong credit growth has been observed in manufacturing (12 per cent), transport and communications (13.6 per cent), agriculture (15.3 per cent), real estate (8.7 per cent) and consumer durables (18.1 per cent).

Last week, CBK's Monetary Policy Committee retained its base lending rate at seven per cent for the sixth consecutive time on accommodative policy stance and stable inflation, as it sought to ensure cheaper loans. 

The January 2021 MPC Private Sector Market Perceptions Survey revealed expectations of strong economic activity over the next two months, and greater optimism on the economic prospects in 2021.

Respondents attributed the improvement largely to the reopening of all learning institutions, expectations of acquiring a Covid-19 vaccine, the implementation of the Economic Stimulus Programme by the Government, resumption of most businesses that had stalled due to the pandemic, and strong agricultural production.

However, uncertainties were noted with regard to the increase in Covid-19 infections globally and emergence of new variants.

The Survey of hotels and flower farms by the CBK conducted between January 13 and 15, showed continued recovery from the disruptions in April and May.

In particular, 97 per cent of the respondent hotels are now open, compared to 96 per cent in November 2020 and 35 per cent in April, with continued re-engagement of employees particularly during the festive season in December.

Average bed occupancy was reported at 26 per cent in December 2020, compared to 11 per cent in April.

All respondent flower farms indicated that they are now operational, while employment and export orders for flowers have improved and are now close to pre-Covid-19 levels.

Respondents also indicated that orders for flower exports over the next four months are expected to remain strong, but with a risk of potential disruptions from a tightening of Covid-19 containment measures in key markets.

The National Treasury projects the economy to rebound this year to a high of 6.2 per cent from 0.6 per cent last year, driven by recovery of key sectors of the economy from effects of the pandemic.

Meanwhile, the operationalisation of the Credit Guarantee Scheme for the vulnerable Micro Small and Medium sized Enterprises (MSMEs) is expected to de-risk lending by commercial banks, and play a critical role in increasing credit to this sector.

The banking sector remains stable and resilient, CBK has noted, with strong liquidity and capital adequacy ratios.

The ratio of gross non-performing loans (NPLs) to gross loans however was slightly higher, standing at 14.1 per cent in December, compared to 13.6 per cent in October.

Loan default increases were noted in the transport and communications, trade, real estate and agriculture sectors.

The increases in NPLs were attributable to the subdued business environment, and banks continue to make provisions.