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September 23, 2017

Kenyans hold Sh240bn of unserviced loans

KBA director of communication Nuru Mugambi, chief executive Habil Olaka with director of policy Jared Osoro at a press briefi ng in Nairobi on August25, 2016 /ENOS TECHE
KBA director of communication Nuru Mugambi, chief executive Habil Olaka with director of policy Jared Osoro at a press briefi ng in Nairobi on August25, 2016 /ENOS TECHE

Loan default rate in Kenya has increased by 200 per cent from Sh120 billion to Sh240 billion in the last two years, a new report indicates.

According to the Kenya Bankers Association quarter two Economic Bulletin of 2017, the increase is from the first quarter of 2015 to the second quarter of 2017 ending June 30, 2017.

The report attributed the increase in the gross non-performing loans to challenges in the business environment that led to cash flow constraints for borrowers.

It also pointed out the drought experienced in quarter one of 2017 to have affected the agri-business enterprises thus the likelihood of such businesses being negatively affected.

The ratio of gross non-performing loans to gross loans increased by 3.17 per cent between quarter one of 2017 and the second quarter of 2017.

This is down from the 6.43 per cent rise between quarter four of 2016 and quarter one of 2017.

“Most listed companies have recorded very negative returns since late 2015, this is because they have been taking loans not for investment purposes but for operational expenses, this has adversely affected loan performance,” Kenya Banker Association director of research and policy Jared Osoro said.

He also cited micro, small and medium enterprises and personal account holders as the biggest defaulters.

Compared to quarter one of 2016, the report shows that the rate of defaulters went up by 50 per cent.

A survey by the Central Bank of Kenya released last week indicated that the levels of non- performing loans remained constant in second quarter of 2017 in 10 economic sectors.

However, despite being constant, the banks have projected a 42 per cent further rise in the third quarter because of the industry’s perception of increased political risk in the country ahead of the upcoming elections.

From the survey, 35 out of 42 banks felt that the non-performing loans did not change in the mining and quarrying, and energy and water sectors.

The financial sector reported a 74 per cent constant level of non-performing loans.

To mitigate this rise, the bankers’ association now recommends thorough screening of new accounts, while appreciating that the mitigation will not be drastic.

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