Kenya: Bad loans fall Sh11 billion on recovering economy

Enhanced loan recovery efforts by banks and the post-Covid recovery of jobs and businesses has helped slash bad loans in the sector at the fastest pace in two years.

Non-performing loans (NPLs) fell by Sh11.3 billion to Sh425.6 billion in December, latest Central Bank of Kenya (CBK) data shows. This is the biggest margin of contraction since it fell by Sh13 billion in December 2019.

Lenders have in the past two years increased their loan recovery efforts through auctions, particularly in the personal and household, trade, real estate, hospitality, and transport sectors.

Defaulters who had lost jobs or seen their businesses hamstrung by the pandemic restrictions are also regaining their footing now, and are therefore able to resume servicing debt facilities.

Banks have also recorded higher growth in new lending compared to the rate they are accumulating bad loans, thus diluting the ratio of bad loans as a share of total loan portfolio.

Their ratio of non-performing credit facilities to total loans stood at 13.1 percent at the end of December, down from a 14-year high of 14.55 percent in March 2021.

“This (fall in NPL ratio) was attributed to a two percent decrease in non-performing loans and a 1.7 percent increase in gross loans,” said the CBK in the December 2021 credit officer survey report released last week.

“For the quarter ending March 31, 2022, banks expect to intensify their credit recovery efforts in nine economic sectors and in two – mining and quarrying, and energy and water- the efforts will not change. The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio.”

The seizures have been most pronounced in the property sector, as well as assets such as motor vehicles and capital equipment that have been financed using debt.

Despite the decline seen in the second half of last year, global ratings agency Moody’s expects that bad loans will continue to be the biggest concern for lenders this year.

Moody’s estimates that the NPL ratio will remain above the 12% level.