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Banks to up credit recovery efforts in Q4, survey shows

Thursday, November 18th, 2021 00:10 |
Central Bank of Kenya Photo/Courtesy

Commercial banks will intensify loan recovery efforts in the last quarter of the year to boost liquidity as borrowers attempt to lodge requests for loan moratoria, Central Bank of Kenya (CBK) says.

This comes when credit demand has also remained unchanged in the third quarter except for household and trade sectors, meaning there was little to no capital investment in eight other sectors. 

“For the quarter ended December 31, 2021, banks expect to intensify their credit recovery efforts in all economic sectors. The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio,” according to the CBK’s latest credit survey.

Central Bank of Kenya undertakes quarterly Credit Officer Survey to identify the potential drivers of credit risk. 

Commercial banks have been using aggressive tactics such as auctions to recover the loans since the beginning of the pandemic where properties such as land, hotels, cars among others have been auctioned.

“Credit risk is the single largest factor affecting the soundness of financial institutions and the financial system as a whole,” the regulator says.

In the third quarter of 2021, the perceived demand for credit remained unchanged in eight economic sectors and increased in three sectors; personal and household, trade and manufacturing.

At the same time, the respondents in the survey who are commercial banks said there was an increase in the number of customers seeking relief when it comes to paying their loans.

“Due to increased requests from clients to avail moratorium on their facilities, non-performing loans are likely to increase not knowing when the economic situation will improve. There is also uncertainty on customer incomes and employment coupled with reducing collateral values,” says the survey.

Covid-19 pandemic

The survey shows that 41 per cent of the respondents indicated that non-performing loans (NPLs) are likely to fall in the fourth quarter of 2021. This is attributed to enhanced recovery efforts being implemented by most banks. 

About 26 per cent of the respondents expect the level of bad loans to rise in the fourth quarter of 2021 as a result of the continued Covid-19 pandemic while 33 per cent of respondents expect NPLs to remain constant. 

Ratio of gross loans to total assets increased slightly from 54.75 per cent in the quarter ended June 30, 2021, to 54.85 per cent in the quarter ended September 30, 2021, meaning there were very few new loans issued.

Increase in expenses

The survey shoes the banking sector’s quarterly profit before tax decreased by Sh1.45 billion from Sh50.53 billion in June 2021, to Sh49.08 billion in September 2021. This was as a result of a higher increase in expenses (4.7 per cent) as compared to an increase in income (2.2 per cent). Return on assets decreased to 2.65 per cent in September 2021 from 2.71per cent in June 2021.

CBK data indicates that commercial banks’ quarter one pre-tax profits jumped 19.5 per cent to a record Sh45.9 billion, defying an overall economic downturn due to the Covid-19 pandemic.

It shows that the lenders made an extra pre-tax profit of Sh7.5 billion in the three months to March compared to a similar period in 2020 when total profits stood at Sh38.4 billion.

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