Government blamed for rise in bad loans as it holds supplier cash

Central Bank of Kenya Governor Dr. Patrick Njoroge addressing the press on the economic situation in the country, at the CBK Headquarters. ON 18/09/2017 (Jenipher Wachie)

The Government has been named as one of the debtors holding on to suppliers’ money, leading to increased non-performing loans for banks.

Central Bank of Kenya (CBK) Governor Patrick Njoroge said on Tuesday that the private sector was experiencing serious cash flow problems due to delayed payments from both the national and county governments.

Njoroge is now cautioning that prolonged political uncertainty following last month’s Supreme Court ruling annulling the election of President Uhuru Kenyatta and next month’s repeat poll may further slow down economic activities in the country.

The situation, he said, had pushed up banks’ gross non-performing loans (NPLs) to gross loans to 10.7 per cent.

Most of the NPLs are concentrated in the manufacturing, real estate, and trade sectors. According to Dr Njoroge, Sh2.8 billion that suppliers in the trade segment owe banks is due to delayed payment from the Government.

“A lot of the Sh2.8 billion is from delayed payments both from the national and devolved governments. These have been provided for and initiatives are ongoing to resolve them. As banks get paid, the numbers will change,” he said at a press briefing in his office.

CBK data further shows that about Sh5 billion is stuck in the manufacturing sector, with two cement companies and a plastic firm owing banks the bulk of the money.

In the real estate sector, Sh3.9 billion is categorised as non-performing.

Overall, out of the Sh2.36 trillion gross loans, more than Sh230.6 billion is in the books of banks as NPLs, meaning that borrowers have not made any scheduled payments for at least 90 days since being granted the loan.

Commercial banks told CBK in the latest credit survey that they expected an increase in NPLs in the third quarter of the year, with 42 per cent of those polled answering in the affirmative.

The governor, who last week said he was cautiously optimistic about the economy, said the political uncertainty, if not resolved, would make it hard for consumers and businesses to make key decisions.

“If the noise level accelerates, then consumers will delay their decisions. Many activities will be held in abeyance if there is a lot of uncertainty for consumers to handle,” he said.

He explained that the period leading to the August 8 General election and soon after saw many consumers and suppliers reorganise their activities over fear of the unknown.

Njoroge said a slowdown in consumer activities such as trips and purchase of durable goods was enough to hurt the pace of growth since it could have a ripple effect on other sectors.

As the ruling Jubilee Party’s and the opposition’s war of words intensifies ahead of the October 17 repeat presidential polls, the governor warned that those doing business with the Government would continue to feel the heat.

“If there is more delay and increasing noise, there will be delayed execution of government projects, leading to delay in contract payments and this will affect the business community,” said Njoroge.