COMMERCIAL BANKS IN KENYA IN SH81 BILLION BAD DEBTS

Central Bank of Kenya

NAIROBI, KENYA: The banking industry succumbed to more than Sh81 billion of non-performing loans last year, according to Central Bank’s latest report.

The personal and household sector constituted 26 per cent of the total non-performing loans (NPLs) followed closely by the trade sector at 24.7 per cent.

The real estate and transport and communication sectors comprised 13.4 per cent and 7.9 per cent of the NPLs, respectively. The lowest level of bad debts was recorded in the mining and quarrying sector whose contribution to the total NPLs stood at a measly 0.6 per cent.

According to CBK’s bank supervision report (2013), the proportion of NPLs in the agriculture and manufacturing sectors stood at 6.8 per cent each. The report also said the ratio of NPLs to gross loans increased from 4.7 per cent in December 2012, to 5.2 per cent in December last year. According to the report, substantial share of the banking sector loans and advances were extended to personal, trade, real estate and manufacturing sectors, which accounted for 73 per cent of gross loans in 2013.

Over the same period, 79 per cent of the sector’s loan accounts were in personal/household sector, which accounted for more than 25 per cent of the banking sector credit, and 26 per cent of the NPLs. Trade, real estate and manufacturing sectors accounted for 47.1 per cent of the sector’s credit and 44.9 per cent of NPLs the banking sector credit was extended to personal/ household sector. “The increase in non-performing loans signalled an increase in credit risk which was high in second  half of 2012, and the slowdown in economic activities due to the general elections in March last year,” says the report.

The banking sector is expected to maintain its growth momentum supported by the roll out of full file credit information sharing regional integration initiatives and advances in information and communications technology.

According to the report, commercial banks’ average lending rate declined from 18.13 per cent in January last year to 16.99 per cent in December last year, and the average interest rate paid by banks on deposits increased to 6.65 per cent from 6.51 per cent over the same period.

Consequently, the interest rate spread narrowed from 11.62 per cent in January last year to 10.34 per cent in December in the same year, reflecting a larger decline in the lending rate.  The banking sector registered higher performance last year, with total net assets recording an increase of 16 per cent from Sh2.33 trillion in December 2012 to Sh2.7 trillion in December 2013.