Capital Markets

Bank profits to rise on bad loans relief

banks

Central Bank of Kenya. FILE PHOTO | NMG

Banks will see improvement in reporting non-performing loans (NPL) following the Central Bank’s move to keep loans that go sour as a result of the coronavirus out of bad books.

A report by Egyptian investment firm EFG Hermes Holding shows that Co-operative Bank #ticker:COOP will improve its NPL ratio from 10.5 percent in 2019 to nine percent this year.

Equity Bank #ticker:EQTY is set to cut its bad loan ratio from 2019’s 7.5 percent to 6.5 percent while KCB #ticker:KCB will see dud assets down from 12.3 percent to 10 percent. Stanbic Bank will reduce NPLs from 9.5 percent to 8.5 percent.

EFG said banks will therefore spend less money (charged on profit) on providing for bad loans which will support their bottom line in a difficult year.

“The level of loan loss provisions may be lower than one would have initially assumed given the sharp decline in economic activity. The reason for this is the moratoriums/ forbearance that the central banks have given our banks. So, capital impairment should not be as bad as in other down-cycles,” said Mr Kato Mukuru head of frontier research, EFG Hermes.

Central Bank of Kenya (CBK) anticipated economy-wide defaults and asked banks to give personal borrowers up to 12 month holidays and restructure SME loans.

SMEs and corporate borrowers can contact banks for assessment of restructuring of loans based on respective circumstances.

The CBK will also provide flexibility to banks for classification and provisioning of loans that were performing on March 2.

As at December last year Kenyans had defaulted on Sh331.3 billion which was 12.4 percent of the total Sh2.774 trillion outstanding loans.

CBK said that dud loans as a fraction of total loans had increased to 12.7 percent in February just before the impact of coronavirus stated hitting the economy.

Personal loans account for 28 percent of the Sh2.7 trillion loan value as at December last year.