Kenya's top nine listed banks lowered their provision costs for expected loan defaults by Sh9.1 billion in the nine months to September 2024 as the growth of non-performing loans peaked.
The lenders' total provision costs dropped to Sh45.7 billion in the period from Sh54.8 billion a year earlier, with some institutions raising their provisions while others cut.
Five of the institutions --Equity Bank Kenya, NCBA Bank Kenya, Co-operative Bank of Kenya, Stanbic Bank Kenya and Diamond Trust Bank Kenya-- reduced their cover by an aggregate of Sh13.6 billion.
Equity trimmed its provision costs by the largest margin as the cover fell to Sh4.5 billion from Sh12.9 billion.
Four other banks --KCB Bank Kenya, Absa Bank Kenya, Standard Chartered Bank Kenya and I&M Bank Kenya-- on the other hand raised their loan loss provisions by a total of Sh4.4 billion in the period. The overall decline in provisions in the nine-months period coincided with a reduction in defaults.
“The asset quality, measured by gross non-performing loans to gross loans ratio slightly improved from 16.6 percent in June 2024 to 16.5 percent in September 2024. This was due to a decrease in gross NPLs of 0.2 percent and an increase in gross loans of 0.6 percent,” CBK notes in its September credit survey.
The NPL ratio remained unchanged in October at 16.5 percent with the CBK noting decreases in bad loans in the sectors of manufacturing, energy and water, financial services and agriculture sectors.
CBK says banks have continued to make adequate provisions for NPLs ensuring sufficient buffers for expected credit losses as the impairment ratio remains at its highest level in nearly two decades.
Commercial banks are required to project expected credit losses from lending and make an equivalent provision to cover for the impairment under 2019 adopted international financial reporting standards 9 (IFRS 9).
The lower cover for defaults in the nine months is despite the top banks registering a Sh15.3 billion buildup in bad debt.
Total gross non-performing loans by the nine listed banks hit Sh128.1 billion from Sh112.8 billion, a jump of Sh15.3 billion. The rise in defaults has not dented the Kenyan banking sector’s profitability, with the lenders posting Sh203.8 billion as profit before tax across the nine months to September from Sh177.8 billion a year prior.
Bank profitability in the third quarter was however lower from the prior three months by Sh1.9 billion as expenses rose faster than income in the review period.
“The decrease in profitability was mainly attributable to a higher increase in quarterly expenses by Sh6.2 billion compared to increase in quarterly income by Sh4.3 billion,” CBK added.
Local banks remain stable and resilient in other operational metrics with the industry having posted a capital adequacy ratio of 19.1 percent in September against a 14.5 percent statutory requirement.
The industry’s liquidity ratio meanwhile increased to 54.6 percent in the same period from 53.5 percent, sticking above the minimum 20 percent threshold.
