Large companies have become the biggest bank loan defaulters that also contributed the most to last month’s increase in the stock of non-performing loans (NPLs), Central Bank of Kenya (CBK) governor Patrick Njoroge has said.
Dr Njoroge said the biggest defaulters are firms operating in real estate, manufacturing and trade sectors, who are suffering because of the failure by the national and county governments to pay bills.
“The ratio of NPLs to gross loans increased to 10.7 per cent in August from 9.9 per cent in June. The largest increase was in the three sectors (namely) manufacturing, real estate and trade,” he said at a Press conference on Tuesday following the Monetary Policy Committee’s decision Monday on to hold the policy rate at 10 per cent.
In the manufacturing sector, Dr Njoroge singled out a sugar company, two cement companies and a plastic firm that cumulatively owe lenders about Sh5 billion.
“It is quite localised and there are clear issues with those specific institutions and the lenders are working with them to deal with the NPLs,” he said.
The total bad loans mountain stands at about Sh3.9 billion in the real estate sector most of it linked to two projects -- one a golf course and the other one, a housing project.
There are Sh2.8 billion worth of dud assets in the trade sector, mostly in small units spread across many banks.
“A lot of these relate to delayed payment by government, both the national and county (levels) and we expect the numbers to look better as they get paid,” said Dr Njoroge.
The ratio of gross non-performing loans to gross loans increased from 9.5 per cent in March 2017 to 9.91 per cent in June 2017, reflecting the difficulties borrowers are experiencing in servicing the loans.
Gross loans decreased 0.84 per cent from Sh2.38 trillion in March 2017 to Sh2.36 trillion in June 2017, one of the lowest expansion rates in recent years.
The outcome was in line with the CBK’s earlier findings in an industry survey that commercial banks expected a rise in non-performing loans, citing a slowdown in economic activity, political uncertainty and poor weather.
“The banks intend to allocate more resources to monitoring and recovery of loans as well as use of external parties in the recovery process,” it said in a report.
The banks plan to intensify credit recovery in eight of the 11 sectors of the economy affected, the report said.
Tourism, agriculture, real estate, construction, financial services, manufacturing, trade, transport and personal and households were singled out as the high default risk sectors.
The 12- month growth of credit to the private sector recorded a slight increase to 1.6 per cent in August from 1.4 per cent in July, reversing the downward trend since August 2015.
Energy and water, agriculture and personal or household items recorded the largest increases in gross loans between June and August this year.
“This was in the month of August of all time,” said the governor of the growth in reference to investor jitters linked to the electioneering period.