Small businesses unable to service Sh222 billion loans on tough times
As the economy took a hit last year, at least 241,628 small businesses either defaulted on or had to have loans valued at Sh222.5 billion restructured, a new report has revealed.
As the economy took a hit last year, at least 241,628 small businesses either defaulted on or had to have loans valued at Sh222.5 billion restructured, a new report has revealed.
At least 216,951 loan accounts belonging to Micro, Small and Medium-sized Enterprises (MSMEs) valued at Sh90.4 billion were classified as non-performing, 18,105 loan accounts valued at Sh9.6 billion were written off and 6,572 loan accounts valued at Sh122.5 billion were restructured, the Central Bank of Kenya’s (CBK) 2022 Banking Sector Annual Report reveals.
The report reveals how seriously small businesses in the economy were hit last year, the 241,628 troubled loan accounts representing 20.5 per cent of total MSME loan accounts in the banking industry last year.
Revealing the dire impacts of a tough economy that was underlined by high commodity prices, disrupted supply chains, and a weak currency, the report pointed out pain points MSMEs in the country had, during a year when inflation crossed CBK’s upper band of 7.5 per cent since June.
“Of the 1.18 million MSMEs loan accounts in the banking industry as of December 2022, 216,951 accounts valued at Sh90.4 billion were classified as non-performing. This amounted to 18.3 per cent of total MSME loan accounts and 11.5 per cent of the total value of outstanding MSME loans,” the CBK reveals in the MSME Finaccess Business Survey, inside the report.
It further reveals that non-performing loans (NPLs) in MSMEs made-up 17.5 per cent of Sh515.7 billion total banking industry NPLs in 2022. The MSMEs’ NPLs in 2022 are a slight fall from the situation in 2020 when Covid-19 brought the economy to a standstill when they were Sh98.7 billion.
The report shows that commercial banks last year had to forego at least Sh9.1 billion lent out to MSMEs but they defaulted on repayment, while micro-finance banks (MFBs) wrote off Sh510 million.
There were a total of 1.18 million MSME loan accounts within the banking sector, a 29 per cent growth from 915,115 loan accounts in 2020.
“A total of 6,572 MSME loan facilities in the banking industry valued at Sh122.5 billion were restructured in 2022 to enable borrowers to better manage their credit performance. These constituted 0.05 per cent of total loan accounts and 3.37 per cent of the total value of the gross loan portfolio as at December 2022,” the survey observed.
The amount restructured is also an 11.7 per cent drop from the Sh138.7 billion MSME loans that were restructured in 2020, the Covid-19 hardest hit year.
Source of funding
Despite financial challenges small players in the economy faced, however, the report observes that MSMEs continue to be a significant source of funding for the banking industry, accounting for 13.4 per cent and 57.3 per cent of total customer deposits held in commercial banks and microfinance banks, respectively.
The banking industry last year issued Sh783 billion in loans to MSMEs, with the proportion of the MSME loan portfolio to the total banking sector loan book standing at 21.3 per cent, compared to 20.9 per cent in 2020.
“Lending to MSMEs generated Sh105.1 billion for the banking industry, representing 24.4 per cent of the total income generated from lending by the banking industry,” CBK noted.
This means that the income banks are getting from MSMEs as a result of lending to them has grown by 48 per cent from Sh70.8 billion in 2020
“MSMEs continued to be a significant source of funding for the banking industry, accounting for 14.9 per cent and 59.5 per cent of total customer deposits held in commercial banks and MFBs, respectively,” CBK notes.
