Customers at a KCB banking hall in Nairobi. PHOTO | FILE
An auditing firm, KPMG says bank’s bad
debts, commonly referred to a non-performing loans (NPLs) stand 8.3 per
cent on average as of last year, hence elevating risks for default.
The country benchmark for NPLs is 5.0 per cent.
Experts worry that recently a rise of
capital adequacy ratio, shifting of government funds from commercial
banks to the central bank and austerity measures have added salt to the
wound of already uncertainty of non-payment margin.
KPGM, Head of Debt Advisory and
Restructuring East Africa, Nigel Smith, said in analysing the trend, one
does not need to be genius to see elevated risks for defaulting as NPLs
increases amid tight liquidity.
“Bankers here told me it needs a miracle
to exceed 50 per cent net from recovering action…and it takes a painful
three-five year to settle a case,” Mr Smith told bankers in a breakfast
meeting organised by KPMG on turnaround strategies in Dar es Salaam
yesterday.
Mr Smith said turnaround companies have
farfetched benefits to banks, companies, government, employers and
economy as more tax are expected to be collected unlike if they would go
into receivership.
“Turnaround culture is a global trend.
It helps lenders to recover its principal and interest unlike
receivership and liquidation,” he said. The trend is to start working on
pre-default level that way diverts from non-payment and banks stop
provision for bad debts which at the end of the day cut profitability.
The turnaround has shown 90 per cent of
success in the span of three and six months unlikely court procedures
that takes over five years and recovers less than 50 per cent of
principal amount.
Bank of Tanzania (BoT) monthly economic
review of June shows bank credit to the private sector went down 16.2
per cent in May, down from 19.3 per cent in April.
“A large slowdown in growth was
particularly marked in transport and communication, building and
construction, hotels and restaurants and personal activities,” the
report shows.
A representative from Amana Bank said
reduction of goods at Dar Port raised concerns of business uncertainty
for transporters which may make it more difficult for them to repay back
their loans.
BoT’s representative Sagati Musa said as
regulator they support the turnaround idea as it assists on recouping
would-be-bad-debts instead of other methods - including pumping more
capital.
“The problem I see is bank’s expertise on turnaround firms… (and) change banks way of approaching defaulters,” Mr Musa said.
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