Non-Performing Loans in Kenya on the Rise
By December 2020 the percentage of loans(NPLs) had hit 57.4 per cent from 54.5 percent in 2019 which has been mainly attributed to difficulties that businesses are facing amid Covid 19 pandemic.
Babra Adhiambo
Loan defaulters have hit Ksh. 336 billion even with the banks restructuring payments of loans amounting to Ksh.1.63 trillion. The Central Bank of Kenya (CBK), on March last year, introduced alternative measures in the banking sector to offer relief to borrowers affected by the pandemic by extending loan repayments by up to a period of one year.
The percentage of gross non-performing to gross loans measures the condition of the banking system and this high percentage shows that banks are struggling to recover dispensed loans and interest on the loans.
Banks that have restructured loan repayments for their customers
- Kenya Commercial Bank 120.2 billion.
- Absa Bank Kenya 8.3 billion.
- Standard Chartered Bank of Kenya 22.0 billion.
- Diamond Trust Bank 40.7 billion.
- Co-operative Bank of Kenya 15.3 billion.
- Equity Group Holdings 92.0 billion.
The following factors may shape the banking sector under the tough operating environments
Lowering of the Cash Reserve Ratio (CRR)
The CBK lowered the CRR by 100 bps to 4.25 percent from 5.25 percent. The reduction is projected to have added about Ksh.35 billion in additional liquidity to borrowers.
Low Interest Income
Due to loan restructuring and relaxed rules banks interest revenue will be affected negatively. The banks are also not lending aggressively with the ongoing pandemic that has affected major sectors of the economy.
Increased provisioning
The risk of bad loans still remain high since businesses have been affected globally by covid 19.Therefore a higher provisioning requirement is expected as per the (International Financial Reporting Standards)IFRS therefore restrained profitability by the banking sector.
Cost Rationalization
Increased adoption of alternative channels by banks such as use of mobile, internet and agency banking has improved their operational efficiency.
Revenue Diversification
The banks have remained rigid amid a rigid regulatory environment due to the increase in Non-Interest Income NFI growth which has outperformed the interest income.
