Borrowers struggle as bad loans hit Sh336b

Over the past five years, non-performing loans have risen to a 12-year high. [Courtesy]

Data from the Central Bank of Kenya (CBK) shows that gross non-performing loans (NPLs) - credit for which principal or interest has not been paid for 90 days or more - rose to Sh336.4 billion from Sh308.8 billion in the same period last year.  

NPLs as a share of total loans in July this year, the regulator said, remained unchanged at 12.4 per cent as borrowers struggled to repay their loans.

The rise in the value of bad loans in the first six months of the year came at a time when economic growth was sluggish, with major economic sectors including agriculture and manufacturing slowing down.

Over the past five years, Kenyan businesses have found it increasingly hard to repay their debts, with the rate of NPLs climbing to a 12-year high.

Another report that tracked the bad loans showed that they went back to 2003 when President Mwai Kibaki first took office, standing at a record 35 per cent of total lending at the time.

Over the next 10 years, the rate came down to less than five per cent only for the bad loans to rise back to double digits in 2017 before settling at 12 per cent last year. Another CBK report for the fourth quarter of 2018 showed that agriculture registered the highest growth in NPLs (28 per cent) in the three months to December last year, followed by financial services whose bad loans went up by 9.4 per cent.

Other sectors that registered an increase in bad loans during this period included energy and water as well as real estate.

“Credit risk remained elevated with gross non-performing loans to gross loans ratio standing at 12.03 per cent in the fourth quarter of 2018,” said CBK in the report.

Banks’ profitability, however, improved during the period under review, with lenders making Sh99.1 billion in profit before tax compared to Sh87.9 billion in the same period last year.

Credit to the private sector during this period grew by 6.1 per cent, with total loans to firms and households increasing to Sh2.52 trillion.

Banks have squeezed much of their earnings from fines and fees as they look for a way to beat the rate cap.

The mining and quarrying sector, on the other hand, saw its stock of credit decline by 13.5 per cent, with credit to other activities not stated plunging by 17 per cent.  Banks also seem to have reduced their appetite for public debt, which grew by 11.3 per cent in July 2019 compared to 24.4 per cent in July 2018.

Credit to the building and construction sector continued to post negative growth as the Government goes slow on mega infrastructural projects as part of its austerity measures.