Chase-SBM deal pushes sector bad loans to 12.7pc

Commercial banks’ gross non-performing loans (NPLs) rose to a high of 12.7 per cent in August from 12 per cent in July mainly driven by completion of the Chase Bank - SBM Bank deal.

Central Bank of Kenya (CBK) governor Patrick Njoroge said on Tuesday that the carving out of majority of assets and certain liabilities from under-receivership Chase Bank by the Mauritian lender contributed five percentage points rise in NPLs.

“Half of the increase in NPLs was related to the Chase Bank (Kenya) Limited (In Receivership)/SBM (Kenya) Limited transaction,” said Dr Njoroge in a statement after yesterday’s Monetary Policy Committee meeting.

This confirms his comments last year that many borrowers who had large deposits in the bank decided to stop making payments, which led to its mortgage book sinking into negative equity.

Negative equity occurs when the value of real estate property falls below the outstanding balance on the mortgage used to purchase that property.

Excluding the Chase-SBM transaction that was completed on August 24, Dr Njoroge said, the NPL ratio could have risen marginally to 12.1 per cent mainly attributable to delayed payments from government and the private sector.

The NPLs have been on sustained spike, forcing many lenders to shy away from issuing fresh loans in the era of capped interest rates.

The 2017 banking supervision report showed that the sector lost 657,000 loan accounts last year, adding to the 695,000 loan accounts lost in 2016.

But this year, private sector credit growth has shown gradual recovery to hit 4.3 per cent in the 12 months to August.

The CBK said on Tuesday that credit to the manufacturing, building and construction, consumer durables and trade sectors grew by 13.3 per cent, 14.9 per cent, 11.5 per cent, and 7.0 per cent, respectively.