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Editorials

EDITORIAL: Rise in bad bank loans a timely wake-up call

The ratio of non-performing loans to gross loans rose to 10.56 per cent for the quarter ending December 2017. PHOTO | FILE
The ratio of non-performing loans to gross loans rose to 10.56 per cent for the quarter ending December 2017. PHOTO | FILE 

Reports that the pile of bad bank loans rose by Sh47 billion to hit the Sh260 billion mark in the year to December 2017 is a clear wake-up call on the effects of political turbulence in the country’s economic sphere.

According to the Central Bank of Kenya in its latest credit officer survey report, there was a slowdown in business activities due to the political tensions in an election year, which ultimately affected the ability of businesses to service their loans.

Following the introduction of the rate cap last year, the cost of loans had a ceiling of 14 per cent.

But despite this, the CBK survey found that a slowdown in business activities saw the ratio of gross non-performing loans increase from 10.44 per cent in September 2017 to 10.56 per cent in December 2017.

It is a well-known fact that local politics and its attendant negative effects have always managed to derail businesses. The Kenyan economy was also burdened by a prolonged drought , which saw it grow by just 4.4 per cent in the third quarter of last year. There is indeed a very thin line between economic growth and stagnation. 

Once the growth curve is halted, the results are quite vivid. For example, when companies are unable to service their loans due to forces beyond their control their last result is normally to lay off workers, which sparks a trickle-down effect that sees the latter lose their jobs and fail to service loans they had taken.

While local banks have expressed optimism about the easing of the nonperforming loans as political tensions subside and recovery mechanisms are enhanced, we opine that time has come for the country to start practising mature politics.

We need to adopt a culture of political engagement that does not damage critical sectors of the economy. We must also end the current endless politicking that relentlessly carries on from one electoral cycle to the other.

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