Markets & Finance

Real estate developers top loan defaulters list


Residential houses under construction in Lavington, Nairobi. Photo/Denis Ochieng

The construction, building and real estate sector topped the list of sectors with biggest loan defaults in the first quarter of the year, a Central Bank of Kenya survey shows.

According to the new Credit Officers’ Survey for the quarter ended March 2013, 15 per cent of commercial banks said non-performing loans (NPLs) in building, construction and real estate had increased.

Building and construction includes all structures such as roads, buildings, ports and rail, as per CBK’s classification. Real estate sector includes only houses and land.

Slightly lower proportion of commercial banks said the transport and communications sector also had experienced high NPLs.

The non-performing loans as at March were in line with expectations of credit officers last December. The total NPLs increased by 14.1 per cent to Sh70.25 billion in March 2013 from Sh61.57 billion in December 2012.

A loan is considered non-performing if it remains un-serviced for more than three months.

The CBK attributed the increase to the uncertainty around the General Election conducted in March. However, the survey report did not explain why other sectors were not affected by the same election uncertainty.

“In the December 2012 credit survey, banks had forecasted an increase in NPLs in the trade, tourism, transport and communication, and real estate sectors in the quarter ended March 2013 due to expected increase in political risk. The March 2013 data on actual NPLs generally confirmed the banks forecast, especially on the trade and real estate sectors,” said the report.

(Read: High interest rates leave banks with Sh70bn in bad loans)

But the survey noted that the March 2013 financial data revealed an increase of NPLs in personal and household sectors as well. This was an indication that personal loans given mainly on the basis of salaries were not being serviced.

The report also said NPLs for the building, construction, transport and real estate were likely to increase in the quarter to June, although it did not cite any reasons for this.

However, the report added, the institutions forecast a decrease in NPLs in the tourism, restaurant and hotels sector and the trade sector.

It also emerged from the survey that during the quarter, credit standards were tightened for the tourism, restaurant and hotels, financial services and personal/household sectors. In recovery of loans, the institutions will focus more on some sectors than on others.

“The banks expect to intensify their credit recovery efforts in manufacturing, building and construction, trade, transport and communication, real estate and personal/household sectors in the quarter ended June 2013,” said the report.

However, the credit recovery efforts towards agriculture, mining and quarrying, energy and water and financial service sectors are expected to remain constant.

“Some banks indicated that they intend to intensify credit recovery efforts so as to move towards less provisions and higher profitability,” said the report.

Other banks said their credit recovery efforts will remain unchanged as they continuously use credit reference bureaus when originating credit facilities.

The lenders also revealed they were monitoring their loans books to identify early warning signs, while others have resulted to using debt collection agents to fast-track credit recovery.

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