Bad loans take a toll on Kenyan businesses

Kenyan businesses are increasingly suffering to repay their debt with the rate of non-performing loans (NPLs) climbing to a 12-year high, a new report that tracked bad loans since 2003 now shows.

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, representing 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.

“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.

The value of bad loans in the banking sector hit a new high of Sh345 billion at the end of March, raising questions on the health of the economy even as the lenders booked double-digit profit growth in the first three months of the year.

Banking sector data compiled from the lenders’ financial reports shows that gross non-performing loans increased by Sh27.5 billion or 8.7 percent in the first quarter of 2019.

The non-performing loans piled up even as banks reported a 22 percent year-on-year rise in first quarter net profit to Sh33.6 billion.

The rise in non-performing loans points to the difficulties businesses are facing to stay afloat in the economy, and the reduced spending power of ordinary Kenyans.

The banks have in the meantime grown their lending to government, which analysts say is helping to shield them from the negative effects of non-performing loans. They are also tapping non-interest earnings, which include fees and commissions charged on customers to boost their top line.