Top listed banks cut provisions on expected credit losses by 23.7 percent last year amid a pause in the growth of non-performing loans (NPLs), which have since re-emerged from tough economic conditions.
The nine tier-one lenders trimmed their provisions from Sh92.3 billion in December 2023 to Sh70.5 billion at the end of last year as the industry NPLs ratio eased to 16.4 percent after peaking at 16.7 percent in August, a nearly two-decade high.
The ratio of NPLs has since jumped to 17.2 percent as of February 2025, signalling that banks could be forced to raise their cover for expected credit losses again in line with the International Financial Reporting Standard Nine (IFRS-9).
Seven of nine banks cut their loan-loss provisions in the 2024 financial year with Equity Bank Kenya, marking the largest cut at Sh11.1 billion to bring funds set aside for potential credit losses to Sh8.4 billion from Sh19.4 billion previously.
The Co-operative Bank of Kenya and I&M Bank Kenya bucked the industry trend by raising provisions from Sh5.5 billion and Sh5.3 billion to Sh8.3 billion and Sh5.7 billion, respectively.
The broad provisions cuts came even as the banks’ total gross NPLs rose mildly by 4.2 percent to Sh514.1 billion in December 2024 from Sh493.3 billion, previously.
The Central Bank of Kenya (CBK) noted NPL increases in the sectors of real estate, personal and household, trade, building and construction, and manufacturing.
The apex bank said the banking sector remained stable and resilient with strong liquidity and capital buffers and that lenders continued to make adequate provisions for expected credit losses.
Kenya Bankers Association (KBA) Chief Executive Raimond Molenje said the sectors were the hardest hit by weak consumer demand.
“The performance of these sectors had been adversely affected by reduced demand by consumers with the tough economic conditions amidst reduced disposable incomes, resulting from higher taxes and higher cost of credit,” he said.
Banks are usually expected to estimate expected credit losses from loans issued and provide funding to cover potential impairments.
Lenders are widely seen to ramp up provisions when the rate of impairment increases while they could tighten lending standards in response to the rise in loan delinquencies.
“As NPLs increase, banks are expected to increase provisions to cover for expected credit losses,” Molenje said.
“In this case, it is never desirable for any bank to continue extending loans when NPLs are edging upwards.”
