Loans – Covid exposes Kenyan banks’ unhealthy loans
Kenyan banks are determining how one can recuperate as they face decrease end-of-year bonuses and decreased dividends for shareholders.
The banks are weighed down by the Covid-19 pandemic, the spillover results of fee caps, stringent loan loss provisioning, calls for of the worldwide monetary reporting normal (IFRS 9), and difficult financial situations which have seen the federal government downgrade the expansion prospects of this yr to a file low of 0.6 p.c, from 2.6 p.c.
Contemplating the quarterly efficiency of the banks, the prospects for full restoration this yr stay weak. Prime banks which have launched their monetary efficiency figures for the 9 months to September 30, reminiscent of KCB, Fairness, Co-operative Bank, Absa and Customary Chartered, have posted double digit declines in web earnings. Market analysts and economists say the pandemic exacerbated the excessive degree of non-performing loans (NPLs).
International score company Fitch famous that Kenyan banks entered 2020 with weak asset high quality, as evidenced by the excessive NPL ratio of 12 per cent on December 31, 2019, and by August this yr the ratio was as much as 13.6 p.c. In a particular report dated October 8, 2020, Fitch mentioned the coverage fee cuts, decreased financial exercise, rising loan impairment costs, debt aid measures and subdued loan progress will cut back bank earnings this yr.
“The business was already going through elevated NPLs pre-Covid. Covid-19 has elevated the NPL danger resulting from debtors going through decreased enterprise exercise,” mentioned Francis Mwangi, CEO of Kestrel Capital Ltd.
The extent of NPLs stood at 9.Four p.c in 2016 and crossed the double-digit mark in 2017 at 12.three per cent, earlier than growing marginally to 12.7 per cent and 12.6 p.c in 2018 and 2019, respectively. Presently, NPLs are roughly 13 p.c, up from the 4.Four p.c to eight per cent vary throughout 2009 to 2013. KCB Group recorded a 43 p.c drop in web revenue through the 9 month interval ended September 30, with the lender greater than tripling its loan loss provisions to Ksh20 billion ($182 million) from a low of Ksh5.84 billion ($53.2 million). The lender, which has operations in Kenya, Uganda, Tanzania, Rwanda, Burundi and South Sudan recorded a web revenue of Ksh10.89 billion ($99.1 million), down from Ksh19.16 billion ($174.Four million) in the identical interval final yr.
Co-operative Bank’s web revenue declined by 10 per cent to Ksh9.Eight billion ($89 million) from Ksh10.9 billion ($99 million) on account of decreased banking transactions and elevated provisioning.
The lender’s revenue after tax declined to Ksh9.Eight billion ($98 million) from Ksh10.9 billion ($109 million) in the identical interval final yr.
Fairness Group recorded a 14 per cent decline in web revenue for the 9 months to September 30 largely on account of rising operational prices and elevated provisioning for unhealthy loans. Its web revenue declined to Ksh15 billion ($150 million) from Ksh17.5 billion ($159 million) in the identical interval final yr, with the Tanzanian subsidiary yielding to a web lack of Ksh200 million ($1.82 million) whereas the Congolese subsidiary’s web revenue dropped by 34 per cent to Ksh600 million ($5.46 million).
Fitch forecast Kenya’s GDP progress to decelerate to at least one per cent this yr, the bottom since 2008.
“I think generally, Covid has possibly exacerbated what was already a simmering problem in the banking industry,” Kenya Bankers Affiliation chief government Habil Olaka advised The EastAfrican in an earlier interview.
“You recall the interest capping law was repealed last year in November, and it was already uncovering what was a simmering problem,” Mr Olaka mentioned.
The banking sector began extending credit score to small and medium-sized enterprises. Simply when credit score enlargement was starting to choose up at the start of this yr, Covid-19 occurred, he added.
