Three sectors account for 54pc of Kenyan banks' bad loans – Business Daily
The Central bank of Kenya, Nairobi on Wednesday, December 30, 2020. PHOTO | DENNIS ONSONGO | NMG
Three sectors — trade, real estate and manufacturing — account for more than half (54 percent) of the Sh514 billion bad loans held by Kenyan banks.
Data released by the Central Bank of Kenya (CBK) on the outstanding bad loans per sector for 11 main sectors in the economy reveal that bad loans in trade increased 10 percent since January to a record Sh109.8 billion at the end of the first half of the year.
The stock of bad loans in the manufacturing sector grew fastest at 57 percent to Sh89.4 billion in the six months to overtake real estate, which had Sh79.4 billion in defaults.
Other sectors that recorded a notable increase in the review period were building and construction, which rose by 42 percent to Sh41.5 billion, and agriculture, which increased by Sh7 billion to Sh26.3 billion.
The rise in bad loans has been blamed on a tough economic period in the run-up to the August polls and external factors that have led to supply chain problems.
“The rise in defaults was systemic and was attributable to a few large borrowers with specific challenges in the respective businesses,” said the CBK in a statement.
The CBK, however, appears unperturbed by the rising bad loans, which now account for 14.7 percent of total banks’ loan book.
“Banks have continued to make adequate provisions for non-performing loans,” said the CBK in the statement.
The rise in bad loans comes at a time when the country’s private sector credit growth and interest rates are growing. Credit growth for June was recorded at 12.3 percent, the highest since April 2016.
The average interest rate charged on bank loans in July was recorded at 12.35 percent, the highest since November 2019 when the rates were 12.38 percent.
Lending rates have been rising gradually as banks get approval from the CBK for risk-based pricing, which enables lenders to charge interest based on a borrower’s risk rating.
Only two sectors recorded a drop in the stock of bad loans since the year began. Financial services saw their defaults drop by 4.0 percent to Sh5.3 billion, and the stock of bad loans in the mining sector also shrank by 12 percent to Sh2.2 billion.
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