The 10 Kenyan-listed banks set aside an extra Sh46.6 billion in the year ended December.
According to an analysis of the lenders' financial statements, total loan provisioning costs rose to Sh120.8 billion in the review period from Sh74.1 billion the year before.The higher provisioning costs came against a Sh148.8 billion increase in the banks’ gross non-performing loans which closed the year at Sh598.5 billion from Sh449.7 billion in December 2022. KCB Group, for instance, raised its loan provisions by the highest quantum of Sh20.4 billion as its gross defaults topped Sh208.2 billion from Sh161.2 billion previously.
The bank’s increase in provisions was closely followed by Equity Group which added Sh20.1 billion to its credit loss reserves in the same period. The two top lenders' impairment costs represented more than three-quarters of the increase in provisions by listed banks in 2023.
According to Absa Bank Kenya Chief Finance Officer Yusuf Omari, loan defaults have become prevalent in the industry against what has been a tough macroeconomic environment defined by rising interest rates, foreign exchange inaccessibility and higher taxation.
“With a tough macroeconomic environment like what we saw last year; high interest rates, the non-availability of dollars and the devaluation of the local currency, of course, certain sectors will be significantly affected such as SMEs in the import business,” he said.
Besides increasing their cover for expected credit losses, commercial banks have taken their own initiatives to address the rising rate of defaults, including loan write-offs and restructures. For instance, Absa Bank Kenya restructured loans worth Sh2.1 billion last year while NCBA Group wrote off Sh12 billion in facilities in the same period.
The initiatives have been largely in-house with the CBK holding off against interventions for a regulator-driven restructure programme as was the case during the last credit risk jitters that occurred in the wake of the Covid-19 pandemic. Instead, the sector regulator says that it has stepped up engagements with banks to ensure adequate provisioning and adherence to capital requirements.
“We are always concerned about NPLs. We are very cautious and have enhanced consultations with the banks to ensure they are provisioning adequately and that they have enough capital," CBK Governor Kamau Thugge said last week.
"The industry is significantly capitalised. In terms of capital adequacy, we are almost at 19 percent compared to the legal requirement of 14.5 percent. Banks have also taken the initiative to restructure some of the loans, preventing them from becoming non-performing.”
From 2018, commercial banks have been required to adopt the International Financial Reporting Standard 9 (IFRS 9) which requires lenders to recognise both incurred credit losses and losses expected in the future which has resulted in a significant increase in loan loss provisioning costs. Despite the rising banking industry non-performing loans ratio, some lenders have bucked the trend by cutting their provisions.
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