Bad debts fall by 11 billion shillings thanks to the recovery of the economy

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Capital markets

Bad debts fall by 11 billion shillings thanks to the recovery of the economy


The Central Bank of Kenya building in Nairobi. PICTURES | DENNIS ONSONGO | NMG

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Summary

  • Non-performing loans (NPLs) fell from 11.3 billion shillings to 425.6 billion shillings in December, according to the latest data from the Central Bank of Kenya (CBK).
  • Over the past two years, lenders have stepped up their loan collection efforts through auctions, particularly in the retail and household, commercial, real estate, hospitality and transportation sectors. .
  • Banks also saw higher growth in new loans relative to the rate at which they are accumulating bad loans, diluting the ratio of bad loans to the total loan portfolio.

Increased loan collection efforts by banks and the post-Covid recovery of jobs and businesses have helped reduce bad debts in the sector at the fastest pace in two years.

Non-performing loans (NPLs) fell from 11.3 billion shillings to 425.6 billion shillings in December, according to the latest data from the Central Bank of Kenya (CBK). This is the biggest contraction margin since it fell 13 billion shillings in December 2019.

Over the past two years, lenders have stepped up their loan collection efforts through auctions, particularly in the retail and household, commercial, real estate, hospitality and transportation sectors. .

Defaulters who had lost their jobs or seen their businesses crippled by pandemic-related restrictions are also now regaining their footing and are therefore able to resume debt servicing.

Banks also saw higher growth in new loans relative to the rate at which they are accumulating bad loans, diluting the ratio of bad loans to the total loan portfolio.

Their ratio of non-performing credit facilities to total loans stood at 13.1% at the end of December, down from a 14-year high of 14.55% in March 2021.

“This (decrease in NPL ratio) was attributed to a 2% decrease in non-performing loans and a 1.7% increase in gross loans,” the CBK said in the loan officer survey report. of December 2021 published last week.

“For the quarter ending March 31, 2022, the banks plan to intensify their credit repair efforts in nine economic sectors and in two – mining and quarrying, and energy and water – the efforts will not change. Turnaround efforts aim to improve the overall quality of the asset portfolio.

Foreclosures were most pronounced in the real estate sector, as well as assets such as motor vehicles and capital goods that were financed with debt.

Despite the decline seen in the second half of last year, global ratings agency Moody’s expects bad loans will continue to be the top concern for lenders this year.

Moody’s estimates that the NPL ratio will remain above the 12% level.

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