Loan defaults hit a Ksh.432B high even as banks restructure Ksh.1.63T in payments

Loan defaults have hit a high Ksh.432 billion in spite of banks restructuring payments on loans amounting to Ksh.1.63 trillion by the close of 2020.

The loan defaults referred to as non-performing loans (NPLs) represent 14.1 per cent of the entire banking sector loan book of Ksh.3 trillion in the period.

The NPL increases, which rose from a lower 13.6 per cent in October 2020, were noted in transport & communication, trade, real estate and agriculture sectors.

“The increases in NPLS were attributed to the subdued business environment, and banks continue to make provisions for the NPLs.

The reserve bank has nevertheless eased concerns on the banking sector’s asset deterioration sighting the industry’s resilience from strong liquidity and capital adequacy ratios.

Meanwhile, the Ksh.1.63 in restructured loans which are in line with CBK directives issued on March 18 include Ksh.330 billion in relief to personal and household loans. The bulk of restructures at Ksh.1.3 trillion represents reviewed repayments to other sectors.

Trade, manufacturing and real estate businesses have dominated the loan reviews at 12.3, 20.4 and 15.4 per cent respectively.

Analysts have nevertheless expressed fears on increased loan defaults beyond loan restructures should the expected economic pick up slacks.

“The banking sector may struggle with the restructured loan book. While majority of the restructured loan book are still considered as normal loans, a chunk of this may turn out as non-performing on slower post pandemic recovery and cash-flow challenges,” Genghis Capital noted in its 2021 playbook.

The higher NPLs tie up to expectations by bankers represented by the Kenya Bankers Association (KBA) who expected defaults to hit the 14 per cent mark at the end of 2020.