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BANKING UPDATE

Loan defaults still a challenge to banks - report

NPLs rose to 14.7 per cent in June up from 14 per cent in March, reflecting deteriorating banks' asset quality.

Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Image: EZEKIEL AMING'A

Loan defaults remains the biggest challenge for Kenya's banking sector as borrowers re-direct resources to basic commodities, according to the latest Central Bank of Kenya credit survey.

The survey shows a slight decrease in personal loan default rates. Increases are reported in virtually all economic sectors except for agriculture and financial services which remained constant.

Personal and households loans default dropped to 29 per cent from 32 per cent in the period under review.

Most defaults were reported in the trade and real estate with Non Performing Loans rising by almost 10  per cent from 23 per cent in March  to 32 per cent in June.

Although the survey does not give the total amount in default, the Central Bank of puts the amount of NPLs in the first quarter of 2022 at Sh473 billion.

The survey attributes the defaults to volatilities in the global market place largely on supply glitch caused by Russia-Ukraine crisis. coupled with a slow market recovery from the impact of Covid-19.

According to the report covering the first six months of 2022, NPLs rose to 14.7 per cent in June from 14 per cent in March, reflecting deteriorating banks' asset quality.

The survey was conducted among 38 operating commercial banks and one mortgage finance company in which 44 per cent of the respondents indicate that NPLs are likely to fall in the third quarter of 2022.

This is attributed to enhanced recovery efforts being implemented by most banks.

However, 33 per cent of the respondents said they expect the level of NPLs to rise in the third quarter of 2022.

This, they attribute to subdued business activities because of slowed recovery from coronavirus pandemic.

Twenty three percent of respondents on the other hand expect NPLs to remain constant.

Despite grappling with defaults the Kenyan banking sector recorded growth in the  period under review.

The aggregate balance sheet increased by 2.4 per cent to Sh6.2 trillion from Sh6.1 trillion over the same period.

Gross loans increased by 3.3 per cent from Sh3.4 trillion in March 2022, to Sh3.5 trillion in June 2022.

The increase in gross loans was largely witnessed in the trade, manufacturing, and personal and household sectors.

It was mainly due to increased credit towards working capital and loans to individual borrowers.

Total deposits increased by 3.3 per cent from Sh4.5 trillion in March 2022, to Sh4.6 trillion in June 2022.

The capital adequacy ratio reported in the two periods were above the minimum statutory limit of 14.5 per cent.

Quarterly profit before tax increased by Sh5.2billion from Sh57.3 billion in March 2022,to Sh62.5 billion in June 2022.

The increase in profitability was mainly attributable to a higher increase in quarterly income by Sh15.8billion as compared to the increase in quarterly expenses by Sh10.6 billion.

Liquidity in the banking sector decreased marginally from 55.0 per cent in March 2022, to52.5 per cent in June 2022.

This was well above the minimum statutory ratio of 20 per cent.

 

Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Image: EZEKIEL AMING'A