Bad loans balloon as top banks face tough Covid test

Bad loans for Kenya’s top nine banks by assets have increased by Sh82.5 billion in the full-year period between March last year and March this year, highlighting how Covid-19 has been devastating to local banks.

The lenders that have released their results for Quarter One this year have posted a total of Sh339.9 billion in bad loans, which is a 32 per cent rise from the Sh257.4 billion non-performing loans (NPLs) in March last year.

At the same time, the ratio of these gross NPLs to total loans has also increased from 12.5 per cent to 14.5 per cent, underlining a worrying year for lenders.

An analysis shows that KCB Group’s share of bad loans in the period grew to Sh98 billion in March, a staggering 48 per cent up from Sh66.2 billion in a similar period last year.

Sh6.37 billion

The lender reported a marginal 1.8 per cent rise in net profit for the quarter, from Sh6.37 billion in the review period compared to Sh6.26 billion last year after making lower returns from mobile lending to reduce defaults.

“Overall performance was largely impacted by lower non-interest income due to subdued digital lending on reduced disbursements and lower customer transactions,” said KCB Chief Executive Joshua Oigara.

Equity Bank meanwhile has recorded a larger profit growth of 64 per cent in net profit in the quarter to Sh8.7 billion, up from Sh5.3 billion last year, majorly driven by interest income.

But the Group’s gross NPLs rose 42 per cent to Sh63.4 billion up from Sh44.6 billion in March last year, underlining a torrid year for the lender, although the  bank’s 11.3 per cent NPLs ratio to gross loans is slightly lower than the current industry average of 14.6 per cent.

Co-operative Bank’s NPLs, meanwhile, have risen 63 per cent to Sh51.9 billion up from Sh31.8 billion in the full year between March 2020 and March 2021, while Diamond Trust Bank’s bad loans rose 40 per cent to Sh22.9 billion up from Sh16.6 billion last year.

At the same time, Kenya’s oldest bank, Standard Chartered, has recorded 11 per cent rise in gross NPLs to Sh22.2 billion in March, up from Sh20 billion last year as NCBA posted one of the lowest increases in NPLs during the period, growing by 1.8 per cent to Sh39.5billion from Sh38.8 billion last March.

At the same time, I&M’s bad loans grew 11 per cent to Sh24.7 billion in March, up from Sh22.2 billion in March last year.

Pandemic

But Absa, which has been transitioning from former name Barclays over the year, became the only large lender to defy the pandemic and reduce its bad loans slightly. The lender’s gross NPLs, which stood at Sh17.3 billion in March last year, managed to reduce marginally by 0.3 per cent to Sh17.2 billion in March this year.

Stanbic Bank is the only large lender that has not yet updated its first quarter results, but still recorded a 29 per cent rise in NPLs for the full year 2020, totalling Sh25 billion, up from Sh19.3 billion in the previous year. The lender was not included in the tally.

“The increase in gross NPLs to gross loans ratio in 2020 was mainly attributable to the higher growth in NPLs compared to the growth in gross loans. NPLs grew by 29.6 per cent as compared to the increase in gross loans by 11.7 per cent,” the CBK said in its latest annual banking sector report released on Wednesday.

Between January and December last year, these top nine lenders made loan loss provisions of Sh109.7 billion, a steep 240 per cent jump from just Sh32.3 billion in the previous year which cut their combined net earnings by 25.5 per cent to Sh81.2 billion.

Real estate

Data from CBK shows that 28 per cent of banks’ loan book was used for personal and household use, followed by advances to trade, manufacturing and real estate. The four sectors make up 74 per cent of the total value of loans, but all were hit hard by the pandemic which made it difficult for borrowers to make repayments on their loans.

But what will worry the lenders even further is the reduced spending power of the larger population. This  means that they are still finding it difficult to not only recover loans from their customers, but to also cash in on the assets they are holding as collateral such as vehicles, buildings and pieces of land.

Despite this, the CBK is betting on lenders’ reforms such as digitisation and diversification of their portfolio for turnaround this year.

“The banking sector is projected to remain stable and to sustain its growth momentum in 2021 as the outcomes of various reform initiatives in the banking sector continue to manifest,” CBK says.