Bad loans jump to Sh80bn over late pay to contractors
The Central Bank of Kenya. The regulator’s sector report for 2013 shows bank loans amounting to Sh80.6 billion had not been serviced for more than three months as at December last year. FILE
What you need to know:
CBK sector report for 2013 shows bank loans amounting to Sh80.6 billion had gone for more than three months without being serviced as at December last year.
The non-performing loans represent five per cent of the total industry loan book of Sh1.6 trillion in December, a slight drop from 5.4 per cent in September.
Delays by the Treasury to pay State contractors’ bills increased the value of non-performing commercial bank loans by 30.9 per cent last year, underlining the big control that the government wields over the economy.
The Central Bank of Kenya (CBK) sector report for 2013 shows bank loans amounting to Sh80.6 billion had gone for more than three months without being serviced as at December last year, up from Sh61.6 billion an year earlier.
The report also showed total pre-tax profit for the banks rose to Sh124.5 billion in 2013 from Sh107.8 billion an year earlier, while Kenyans’ savings with the banks are on the verge of crossing the Sh2 trillion mark, currently at Sh1.98 trillion.
“Delayed receipts from the government of Kenya for completed projects or contracts affected repayment patterns of customers in the building and construction sector,” said CBK in a credit officer survey report released on Thursday.
The non-performing loans represent five per cent of the total industry loan book of Sh1.6 trillion in December, a slight drop from 5.4 per cent in September.
The surge in bad loans portfolio reflects the government’s dominant position as the largest consumer of goods and services in the economy and the adverse impact a slowdown in State spending can have on the financial markets.
The government was cash-strained last year following heavy spending on the general elections and expenditure on the new devolved government structures.
In July last year the government sought to shorten the period it takes to pay suppliers, especially youths and the disabled, by passing regulations to ensure they are paid within 30 days of contract completion.
Banks are also counting on cost cutting measures being embraced by the Treasury to manage recurrent expenditures to increase the government’s ability to make prompt payments to contractors.
The survey by CBK however revealed most banks expect non-performing loans to rise in the first quarter of this year driven by budgetary strains in households after the December festivities and January obligations.
The Central Bank has also pushed banks to provide adequate cover for credit risk associated with loan defaults.
“According to the new guidelines, a non-performing loan has to remain in that category for six months even if the defaulter resumes normal payment before the six months are over, which ends up inflating the NPL portfolio,” said Kestrel Capital in a research note.
The pile up follows a period of high interest rates charged by the banks which led to ballooning of monthly repayment instalments.
The lenders have been slow to reduce their cost of lending despite signalling by CBK through the benchmark rate, but have been quick to cut the interest they pay to customers who save money with them.
CBK said the banks’ interest income on loans fell by 3.57 per cent in 2013 to Sh211 billion, while interest expenses on deposits fell by 27.4 per cent to Sh72.13 billion in the same period; this despite the faster growth in banks’ deposit base.
The drop in interest paid to savers resulted in a 4.7 per cent drop in total expenses to Sh233 billion.
Total income increased by 1.5 per cent indicating that the profit growth was largely driven by the cut in interest expense.
Individual banks are expected to make public their financial performance this month as per the industry requirements.
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