Summary
- Data from the Central Bank of Kenya (CBK) shows that non-performing loans (NPLs) rose to Sh379.9 billion in June, up from Sh349.9 billion at the end February — the sharpest four-month increase in recent history.
- The NPL growth emerged in a period when Kenyans deferred payments on nearly a third of the bankers’ total loans, a pointer that defaults — which is credit that remains unpaid for more than 90 days — could have been worse without the credit rescheduling.
- The ratio of NPLs rose from 12.7 per cent in February to 13.1 per cent — the highest since August 2007 when it stood at 14.41 per cent.
Workers and businesses defaulted on loans worth Sh30 billion in
the four months to June when Kenya imposed stringent measures to contain
the spread of the coronavirus.
Data from the Central
Bank of Kenya (CBK) shows that non-performing loans (NPLs) rose to
Sh379.9 billion in June, up from Sh349.9 billion at the end February —
the sharpest four-month increase in recent history.
The
NPL growth emerged in a period when Kenyans deferred payments on nearly
a third of the bankers’ total loans, a pointer that defaults — which is
credit that remains unpaid for more than 90 days — could have been
worse without the credit rescheduling.
The ratio of
NPLs rose from 12.7 per cent in February to 13.1 per cent — the highest
since August 2007 when it stood at 14.41 per cent.
Industries
and other businesses have since cut down on their activities in
response to the infectious disease, leading to job cuts and unpaid leave
for retained staff as profitable firms move into losses.
This has seen workers who had tapped mortgages and unsecured
loans for purchase of goods such as furniture and cars and expenses like
school fees default. Unsecured loans are given on the strength of one’s
salary.
Firms that had borrowed based on the forecast of cash flows have also been struggling to repay their bank loans.
The
pace of private sector credit growth has slowed to a five-month low as
banks cut lending, fretful of defaults and the second wave of loan
restructuring applications as the financial crisis persists.
CBK
data shows credit to private sector expanded by 7.61 per cent in the
year to June to hit Sh2.69 trillion. This is the slowest pace since
January when it grew at 7.3 per cent.
“The NPL
increases were noted in the manufacturing, trade and personal sectors
due to a subdued business environment,” said the CBK.
The
current NPL figure shows that banks are losing an average of Sh131 for
every Sh1,000 loaned despite the average loan price having fallen to
29-year lows at 11.92 per cent in April.
The defaults
also came in a period when banks have restructured loans worth Sh844.4
billion, or 29 per cent of industry total credit, to ease the pain for
borrowers and to avoid a sharp increase in defaults.
The
restructuring involved non-payment of loans for up to three months and
extension of credit tenures, which translates to lowering of monthly
repayments.
Personal and household loans top the list
of debt restructured since March when the CBK allowed lenders to offer
relief to distressed customers after the country reported its first
coronavirus infection.
The persistent spike in bad
loans highlights the depth of economic hardship the Covid-19 pandemic
has brought on borrowers, with banks now taking a cautious approach to
issuing out fresh loans.
The rising defaults will
likely set the stage for property seizures as banks move quickly to
auction securities to recover their money.
President
Uhuru Kenyatta on July 6 announced a phased reopening of the country
from a Covid-19 lockdown, lifting restrictions on travel in and out of
Nairobi and Mombasa and allowing air travel to resume.
The restrictions together with a ban on public gatherings and a night curfew were imposed in early April.
Kenya had confirmed 23,202 cases of the coronavirus, with 388 deaths by Tuesday.
The
outbreak has battered the economy, with the Treasury projecting growth
to slow down to 2.5 per cent this year from 5.4 per cent last year, due
to the impact of the Covid-19 pandemic.
Several banks
are preparing for borrowers who had applied for a three-month freeze on
loan repayments to apply for further extension. “We are still flexible
and are prepared to continue to support our customers during these
challenging times,” said Stanbic Bank Kenya chief executive Charles
Mudiwa.
“We will consider further supporting our customers for a longer period should they experience distress.”
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