Bad loans shoot up to 5-year high

Kenya’s non-performing loans touched a five-year high at the end of June, pushed by high interest rates and uncertainty surrounding the last general election.

Data released by the Central Bank on Monday shows loans that have not been repaid for at least three consecutive months rose by 10 per cent to Sh77.3 billion in second quarter of the year, from Sh70.3 billion recorded in March.

The volume of bad loans last reached this level in May 2009 when it stood at Sh69 billion.

“The upsurge in NPL’s level was partly attributable to the reduced economic activities experienced during the period towards and after the March 2013 general election,” said the Central Bank in its latest bank supervision report.

The NPLs now constitute 5.3 per cent of the total sector loan book of Sh1.45 trillion, up from 4.4 per cent a year ago.

According to the data, eight out of 11 sectors in the economy registered an increase in non-performing loans, totalling Sh7 billion in the three months. Personal or household loans, the agricultural sector and mining and quarrying industries registered a slight decline in bad loans while trade, real estate, financial services and manufacturing sector players recorded a rise in bad loans.

War on defaulters

The growing NPLs has pushed lenders to declare war on defaulters, with seven out of ten banks saying they will adopt aggressive loan recovery methods as they seek to rein in these figures as well as boost their profits.

“Banks intend to intensify recovery in five sectors; personal/households, trade, building, real estate and transport to tap into the expected cash flows to these sectors in the quarter ending September 2013,” said the Bank.

New fiscal year

The cash flows are expected to be supported by the start of a new fiscal year, that is likely to see government and its agencies make payments to suppliers, as well as the start of the tourism season.

During the first quarter of the year, two of the country’s top-tier banks, the Kenya Commercial Bank and Equity Bank, announced double-digit growth in NPLs.

Equity Bank has since attributed the growth in bad loans to delay by the government to settle payments to the private sector.

The Kenya National Bureau of Statistics last month released data showing that the financial sector growth had suffered from a slowdown in the demand for credit.

Overall, the period under review saw the banking sector’s profit before tax rise by 15.6 per cent to reach Sh61.5 billion on the backdrop of a decline in interest paid on deposits.

Gross loans and advances increased by 3.6 per cent to Sh1.45 trillion, from the Sh1.40 trillion in the previous quarter.