Banks cut bad loans to 12 per cent in crackdown on defaulters

Commercial banks have aggressively gone after loan defaulters trimming their gross performing loans exposure to 12 per cent at the end of December.

Fresh data from the Central Bank of Kenya (CBK) has the banks’ exposure mended to a more than 12-month low having previously peaked at their worst level in June.

The CBK attributes the recovery to an aggressive recovery and write off campaign as commercial banks seek to trim their exposure to operational risks.

“The decline has been split between write-offs’ and recovery with banks having gone on an aggressive recovery campaign,” said CBK Governor Patrick Njoroge.

The share of bad loan stocks hit 12.7 per cent in mid-2019 with asset quality deterioration being catapulted to a large part by delayed payments to the private sector and the slow uptake of housing units.

Gross non-performing loans made-up Ksh.316.7 billion inside bank balance sheets at the end of 2018 from a Ksh.2.5 trillion portfolio of credit disbursements with trade, real estate, households and manufacturing representing the bulk of the portfolio at 74 per cent.

Incidentally, households, real estate and trade account for nearly all loan accounts at 98 per cent mirroring the reality of concentration risks.

As such, the CBK has retaliated its message on the need for portfolio diversifications among lenders as a risk mitigation initiative.

“It is important for banks to make right decisions at the beginning and not the end. We are concerned of any concentration in terms of investments,” added the CBK Governor.

In spite of the asset deterioration concerns, the banking sector remains stable and resilient with average banks’ liquidity and capital adequacy ratios standing at 49.7 and 18.8 per cent respectively.

Listed banks gross exposure to bad loans stood at 10 per cent halfway through the year and held a 55.9 per cent non-performing loans (NPLs) coverage.

The easing of credit risks by banks signals strengthened issuance of new credit lines to the private sector correcting the lag in the growth of loans to the sector in recent years.