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Share of loans in default hits 8-month high

Central Bank of Kenya building [Jennifer Wachie, Standard]

The proportion of loans that has remained unpaid for at least three months has hit eight-month high on increased lending and a slow pace of repayments.

New Central Bank of Kenya (CBK) data shows non-performing loans (NPLs) ratio — the portion of the loan book for which principal or interest has not been paid for 90 days — rose for the third straight month to hit 14 per cent in February.

The latest figure was last seen in June 2021, and signals that the pace of loan repayments is lagging behind that of issuing new loans as banks warm up to the private sector.

“NPLs increases were noted in the manufacturing, tourism, restaurant and hotels, building and construction and real estate sectors,” said CBK Governor Dr Patrick Njoroge. “These increases were attributed to specific challenges in the respective businesses and banks have continued to make provisions for the NPLs.”

The spike in NPLs came on the back of the pace of private sector credit hitting 9.1 per cent in February, only dwarfed by the 9.6 per cent that was seen in February last year.

CBK said strong credit growth was seen in transport and communications (24.1 per cent), consumer durables (14 per cent), business services (11.6 per cent), (8.9 per cent) and manufacturing (7.6 per cent). “The number of loan applications and approvals remained strong, reflecting improved demand with increased economic activities,” said Dr Njoroge.

This came even as CBK retained the benchmark lending rate at seven per cent — the same level it has been at since March 2020 — noting the current accommodative monetary policy stance remains appropriate. Banks expanded loan book by Sh35 billion between December 2021 and last January — the fastest pace in a month since Sh37 billion seen in May-June 2021.

Latest data shows banks in January made Sh19 billion pretax profit, being 26 per cent more than Sh15.1 billion made in January 2021.

A persistent rise in NPLs usually prompts banks to get aggressive on recoveries, such as auctions, to cut their exposure to bad debts.

CBK’s December Credit Survey Report had shown majority of banks (44 per cent) expect loan defaults to fall in the quarter ending March 2022.