Kenyan banks have reported an increase in bad debts, resulting in the share of non-performing loans (NPLs) reaching a 16-year high, according to the latest data from the Central Bank of Kenya (CBK).
Total non-performing loans in the banking system rose from KSh487.7 billion in December to KSh570.6 billion by the end of April.
The current NPL ratio of 14.9 per cent is second only to the 15.04 per cent recorded by the banking sector 16 years ago in June 2007.
During that time, the gross loan book was KSh470 billion, with gross defaults amounting to KSh70.7 billion.
The CBK notes that the increase in NPLs was noted in the manufacturing, trade, real estate and transport, and communications sectors.
“However, given the increase in the Non-Performing Loans (NPL) portfolio to 14.9 per cent in May 2023 from 14 per cent in February 2023, credit risk appetite by some banks may fall,” notes NCBA Bank Market Analysts.
“Commercial banks will most likely concentrate on working capital and other short-tenor facilities to corporates. On the consumer front, this is unlikely to change for salary-deduction loan facilities. However, this would change if banks significantly roll out lending on the risk-based framework.”
The CBK maintains that the banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios.
“Banks have continued to make adequate provisions for the NPLs,” it said in an emailed statement.
In Q1’2023, the asset quality for listed banks deteriorated marginally, with the weighted average Gross Non-Performing Loan ratio (NPL) increasing by 0.1 per cent points to 12.6 per cent, from 12.5 per cent recorded in Q1’2022.
Cytonn Investments in its Kenya’s Listed Banks Q1’2023 Report said this was driven by deterioration in ABSA Bank’s and Equity Group’s asset quality with their NPL ratios increasing by 1.8 per cent and 1.0 per cent points to 9.4 per cent and 10.0 per cent, from 7.6 per cent and 9.0 per cent, respectively recorded in Q1’2022.
“Going forward, we expect credit risk to remain elevated in the short to medium term mainly on the back of a tough operating environment occasioned by elevated inflationary pressures as well as sustained depreciation of the Kenya shilling,” Cytonn stated.