Banks seek to cut bad loans through aggressive recovery plan

Commercial banks plan to intensify credit recovery to reduce bad debts and improve their loan books, according to a report.
In the survey by the Central Bank of Kenya (CBK), the banks said although none of them tightened their credit standards from January to June, debt recovery is one of their priorities in the next half of the year.

“Over 76 per cent of the respondents noted that they had focused their recovery lens on personal or household loans while 56 per cent had trained their eyes on the trade sectors,” said the CBK in a credit survey report.

Nonetheless, for the quarter ending 30th September 2013, the banks expect the non-performing loans to generally decrease in sectors such as agriculture, building and construction, tourism as well as restaurant and hotel industry.

Personal or household loans, the agricultural sector as well as mining and quarrying industries registered a slight decline in bad loans. Trade, real estate, financial services and manufacturing registered a rise in bad loans during the first half of 2013.

The Central Bank said eight out of 11 sectors in the economy registered an increase in non-performing loans by Sh7 billion in the period March to June.

Bank loans become classified as non-performing if they are not serviced for more than three months.

Barclays Bank of Kenya chief financial officer Yusuf Omari has said that most of the loans are emanating from aggressive lending that banks undertook in the financial year 2011/12.

“The pressure is now coming on this financial year owing to the fact that the economic conditions have not been that favourable,” said Mr Omari.

The period under review saw the sector’s gross loans and advances increase by 3.6 per cent to Sh1.45 trillion in June from Sh1.40 trillion in March.