Kenyan lenders face more challenges managing bad loans this year than their Nigerian counterparts even as credit losses threaten to increase in both nations, according to Renaissance Capital.
Banks in Kenya are more exposed to small- and medium-sized companies as well as retail businesses, which are more sensitive to economic shocks, said Adesoji Solanke, director for frontier and sub-Saharan Africa banks at Renaissance Capital in London. Nigerian lenders have larger exposure to dollar loans and big firms, with a higher capacity to survive downturns, he said.
Here are other comments from Solanke on the diverging asset-quality trends for banks in the two countries:
- Kenyan banks tend to sit on dead-weight loans for longer because they are required to exhaust all recovery options before scrapping the debt. Nigerian banks typically write-off fully provisioned loans after a year on their books
- Non-performing loans and provisioning levels in Kenya have been driven higher by tighter enforcement from the Central Bank of Kenya, the introduction of IFRS 9 accounting standards, and liquidity shocks to the system from the introduction of interest-rate caps and payment delays by the government post-elections
- Average NPL ratio in Kenya is 14% with 54% of the system’s loan book restructured. In Nigeria, NPLs average 6% with 40% of loans restructured
- Nairobi-based KCB Group Ltd. and Cooperative Bank of Kenya Ltd. had only restructured 16% of their loans, while Equity Group Holdings Plc has reorganized 35% of its book by the end of September. “It suggests either that the large banks still have some catching up to do, or that the tier two and three banks have had to restructure significantly more”
- Nigerian banks have benefited from regulatory support in being allowed to re-arrange troubled large-systemic syndicated loans multiple times, some in the manufacturing and upstream oil and gas industries
- “Regulatory forbearance, including pandemic-related moratoriums, have helped Nigerian banks report decent-looking numbers. Our concern for Nigeria, as in other markets, is what happens when the moratoriums expire? The moratoriums could be extended, as we’ve already seen announced in Ghana, giving customers more room to breathe”
— With assistance by Bella Genga