A majority of commercial banks expect loan defaults to remain elevated, with 42 percent anticipating a rise by the end of the current quarter ending September.
The latest credit survey conducted by the Central Bank of Kenya (CBK) on 39 banks shows that personal and household, trade and transport and communication top the list of sectors where many of the banks expect non-performing loans (NPLs) to spike.
While 42 percent of the respondents indicated that NPLs are likely to rise in the third quarter, another 24 percent see the levels remaining constant. Some 34 percent expect a fall.
The latest outlook is a deterioration from the quarter ended June where just 24 percent had expected a rise in NPLs while 45 percent had anticipated a drop.
The outlook comes in an environment where NPLs have risen for five consecutive months to close May at Sh592.6 billion to put a blot on the Sh99.6 billion pre-tax profit achieved during the five-month period.
CBK says banks are still varying repayment periods on some loans to accommodate struggling customers and expects to see a rise in the provisioning for loan losses.
“Currently banks are still considering restructures of struggling facilities outside the CBK waiver, which means there is likely to be an increase in provisions,” says CBK.
The NPL ratio —the proportion of loans for which no interest or principal has been received for at least three months— hit 14.9 percent in May, being a 16-year high, before easing to 14.5 percent in June.
Banks told the CBK that for the quarter ended September, they expect to intensify their credit recovery efforts in eight economic sectors including personal and household, trade, manufacturing, transport and communication and real estate.
The same sectors also top the list where bankers see levels of defaults spiking during the quarter and they are therefore becoming aggressive to control the rise.
“The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio,” says CBK.
CBK Governor Kamau Thugge in June said the rising defaults were linked to the prevailing tight economic conditions as well as the many individuals and businesses awaiting payments from national and county governments.
