Moody’s forecasts drop in bad loans

Global credit rating agency Moody’s has projected a drop in Kenyan banks’ non-performing loans (NPLs) owing to lenders stepping up debt recovery, a gradual recovery in corporate earnings and improved liquidity as the government moves to settle contractors’ pending bills.

The forecast comes amid ballooning NPLs owing to difficulties faced by businesses trying to stay afloat in a tough economic environment, and reduced spending power of ordinary Kenyans.

NPLs locally hit Sh337.2 billion in May 2019, the highest ever recorded since November 2016 when they were at Sh214.4 billion, indicating a 57.2 percent jump.

The non-performing loans piled up even as banks reported a 22 percent year-on-year rise in first quarter net profit to Sh33.6 billion.

“Kenyan banks have stepped up their problem loan recovery and remediation efforts. Together with a gradual recovery in corporate profitability and liquidity as the government settles its arrears (following statements by the President), and a modest pick-up in credit growth, we believe that problem loan levels will stabilise, and start to gradually fall,” Moody’s said.

The report notes that small businesses have been hit hardest by payment delays and reduced access to credit.

These firms will continue to face a liquidity crunch caused by delayed payments by the national government and the counties.

Lack of access to credit by the private sector, which is necessary to fuel real economic growth, has been cited as a drag on the economy.

Kenyan banks have in the meantime grown their lending to government, which analysts say is helping to shield them from the negative effects of non-performing loans.

They are also tapping non-interest earnings, which include fees and commissions charged on customers to boost their top line.

The Kenya National Bureau of Statistics data shows that the economy grew by 6.3 percent last year, up from 4.9 percent in 2017.

The Treasury attributed this growth to strong performance of the agriculture, manufacturing, transport and services sectors. There have been questions, however, as to how much this growth is being felt across the economy.