Nonperforming loans for real estate, household rise highest to Sh12bn

November 2, 2016
The spike, according to the World Bank, can be attributed to changes made by CBK in accounting guidelines to banks./FILE

, NAIROBI, Kenya, Nov 1 – Creditors from the Real Estate and Household defaulted on loans worth Sh12 billion as of March 2016.

This resulted in a spike of nonperforming loans hitting 7.8 per cent of Gross Domestic Product (GDP) in the period under review from the former 6.8 per cent of GDP same period last year.

According to figures from the Central Bank of Kenya (CBK), nonperforming loans on trade rose to Sh4 billion while manufacturing sector recorded NPLs worth Sh3 billion.

The World Bank, in its Kenya Economic Update report, however, attributes the spike to changes in accounting guidelines by the CBK requiring banks, to appropriately record their provisioning for loan losses, rather than a real structural break in the ability of corporate and households to pay back loans.

“Nonetheless it draws attention to the need to monitor much closely as there could be other economic factors at work including lagged effects from the macro turbulence experienced in the third quarter of 2015,” stated the WB report.

NPLThe World Bank also raised concerns over delays in payments from the exchequer that could be playing a contributory role.

The country experienced tight liquidity conditions with the placement of two commercial banks under receivership in the second half of 2015 and a third bank in the second quarter of 2016.

This created liquidity freeze among the lenders keen to minimize further exposures and to enhance recovery of existing loans bringing forth a significant fall in credit which was accompanied by a sharp increase in non-performing loans.

At the same time, the growth of credit to the private sector is slowing down.

CBK statistics for June 2016 indicate that private sector lending growth slowed down to 7 per cent compared to a growth of 15 per cent in 2015.

According to the regulator, nonperforming loans (NPLs) increased by 36.04 per cent to Sh147.3 billion in December 2015, with the ratio of gross NPLs to gross loans at 6.8 percent in December 2015 from 5.4 per cent in December 2014.

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