- The high bad loans have seen lenders up collection mechanisms, with KCB Group for instance forced to set up a special team reporting directly to the CEO
- The number of loan applications and approvals declined, reflecting reduced demand.
Borrowers in Kenya are struggling to meet their credit obligations as they direct limited resources to cover basic needs in the face of rising inflation.
The latest data from the Central Bank of Kenya (CBK) shows that the rate of nonperforming loans (NPLs) rose to 14 per cent in February compared to 13.3 per cent in December 2022.
"Increases in NPLs were noted in the trade, personal and household, manufacturing and building and construction sectors,'' CBK said.
The high bad loans have seen lenders up collection mechanism, with KCB Group for instance forced to set up a special team reporting directly to chief executive Paul Russo to recover billions of shillings in bad loans.
According to the lender's financial results for the year ended December 31, the ratio of NPLs stood at 17.3 per cent, largely driven by downgrades from the KCB Kenya business.
Gross NPLs stood at Sh161. 2 billion. Whereas both the NPL ratio and stock show an increase compared to the prior year, there is a remarkable reduction from the peak numbers in June 2022 when it stood at 21 percent.
At Co-operative Bank Group, the NPL ratio improved to 13.4 per cent lower than the industry average of 14 per cent – reflective of improved asset quality.
The apex bank, however, says that banks have continued to make adequate provisions for the NPLs.
On Monday, Equity Bank reported historic net earnings for the year ended December 31, 2022, at Sh46.1 billion with the least NPL ratio of 7.7 per cent, almost half of the industry's average.
Total cost peaked at Sh84.5 billion after a 39 per cent growth driven by 180 per cent growth on loan loss provision of 13.7 billion up from Sh4.9 billion to achieve 94 per cent NPL coverage at a 2.4 per cent cost of risk.
Apart from the rising cost of living, the high NPL ratio in the banking sector is also attributed to the ongoing global financial crisis that has led to local currency devaluation.
The shilling has since lost 14 per cent against the greenback year on year and 5.8 per cent since January. Yesterday, the shilling dropped to a new low of Sh132.18.
Last week, CBK reinstated interbank forex trading to destabilise the parallel FX market that had seen the dollar exchange at a high of Sh147.
Yesterday, CBK governor Patrick Njoroge was optimistic that the FX market will stabilise in the coming six months due to various initiatives put in place including a government-to-government oil import plan.
"Over the last two weeks, there has been an ease in volatility. The river is coming back to its course,'' Njoroge said.
The CBK foreign exchange reserves have been dwindling in past months, hitting below both country's and East Africa Community set thresholds.
''Our foreign reserves currently stand at $6.49 billion (3.62 months of import cover), continue to provide adequate cover and a buffer against any short-term shocks in the foreign exchange market,'' Njoroge said.
The low rate of debt payment by borrowers has seen the banking sector lower the amount of credit disbursed to private businesses, with most lenders preferring government bonds.
According to CBK, growth in private sector credit stood at 11.7 per cent in February 2023 compared to 12.7 per cent in December 2022.
Strong credit growth was however, observed in manufacturing (15.2 per cent), transport and communication (16.5 per cent), trade (11.8 per cent), and consumer durables (12.4 per cent).
The number of loan applications and approvals declined, reflecting reduced demand.