Bad loans at 12-year high as businesses suffer

Kenya Bankers Association Research and Policy Director, Jared Osoro, during the release of third report on impact of interest capping law, on Friday, May 11 2018.The report shows that while the law was well-intentioned, it has failed to achieve its key objective of increasing credit uptake by households and micro and small enterprises. [David Njaaga/Standard]

Over the past five years, Kenyan businesses have found it increasingly hard to repay their debt with the rate of non-performing loans (NPLs) climbing to a 12-year high.

A report that tracked the bad loans goes back to 2003, when President Mwai Kibaki was fresh in office and bad loans were at a record 35 per cent of total lending.

In the next 10 years, the rate came down to less than five per cent only for the bad loans to rise back up to double digit in 2017, settling at 12 per cent in 2018.

The research by the Kenya Bankers Association (KBA) said the build-up of NPLs over the five years ending 2018 has been noticeable for its persistent rise.

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It presents a shift from the preceding five years when there was a significant improvement in quality of loans to between 4.4 per cent and eight per cent during the 2009–2013 period.

Delicate balance

"The industry’s performance in 2018 shows a delicate balance between careful asset growth amidst returns-risks trade-offs and cost management and efficiency enhancement," said Jared Osoro, director of the KBA Centre for Research on Financial Markets and Policy (pictured).

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Jibran Qureishi, Regional Economist East Africa at Stanbic Bank said that compared to the region, Kenya and Tanzania had elevated bad loans while Uganda was doing well at around five per cent, adding that this could have been a consequence of Government not paying for supplies.

"Uganda has been doing well paying suppliers and giving refunds and the corporates you talk to there say they are feeling the growth,” he said.

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The Government has recognised its role in the bad loans problem and has to pay suppliers their dues, especially after President Uhuru Kenyatta ordered that pending bills be cleared.

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President Mwai KibakiNPLsBad loans