Banks have seen customers resume normal payments on 90 percent of the loans that were restructured in the wake of the Covid-19 pandemic in early 2020.
This has eased pressure on the lender’s capital besides boosting their earnings, with many institutions posting record profits for the year ended December.
“Fears over asset quality deterioration did not crystalise as initially expected. A faster than expected economic recovery, co-ordinated fiscal policy, monetary and prudential interventions averted a marked escalation in non-performing loans,” NCBA Group #ticker:NCBA chairman James Ndegwa wrote in the bank’s latest annual report.
“In fact, about 90 percent of the Sh1.6 trillion loans restructured in 2020, normalised to a performing book by the close of 2021.”
Banks are required to make provisions for actual and expected credit losses, with the requirement aimed at ensuring they can weather adverse economic conditions.
Recovery of the loans was the biggest driver of bank earnings last year through a reduction in provision for bad debt.
The cut in loan loss provision reflects the gradual resumption in debt repayment amid recovery from Covid-19 economic hardships that triggered layoffs, job cuts, and business closures.
Kenya’s top eight banks cut their loan loss provision by nearly half last year, helping to lift their combined net profit by 80.29 percent to Sh132.41 billion.
KCB #ticker:KCB , Equity #ticker:EQTY , Co-op Bank #ticker:COOP , Absa Bank Kenya #ticker:ABSA , NCBA, Standard Chartered Bank Kenya #ticker:SCBK , DTB #ticker:DTK , and Stanbic Holdings #ticker:SBIC cumulatively slashed provisions to Sh55.93 billion in the review period, from Sh106.94 billion in 2020 — reflecting a drop of 47.69 percent or Sh51 billion.
The drop in loan loss provisioning helped most of the banks to post double to triple-digit profit growth and usher in a dividend boom.
KCB, whose net income rose 74 percent to Sh34 billion, cut its provisions 52.2 percent to Sh12.9 billion in the year ended December.
Its stock of bad loans meanwhile increased to Sh122.8 billion from Sh96.6 billion.
Absa Bank Kenya, whose net profit increased 161 percent to Sh10.8 billion, reduced its provisions 47.8 percent to Sh4.7 billion. Its bad loans increased to Sh19.8 billion from Sh17 billion.