In a new report by Fitch Ratings, Kenyan banks credit profiles are said to be at a significant risk following the impact of the coronavirus on the Kenyan economy.
”We forecast that the sector’s non-performing loans (NPL) ratio will rise to about 15 per cent by end-2020, and even higher in 2021 when debt relief measures are phased out,’’ said the global credit rating firm.
The report by fitch stated that the rate of profitability will remain to be under pressure due to the need for rising loan impairment charges (LICs) and moderate credit growth. Also, the firm noted a negative outlook on Kenyan bank Issuer Default Ratings, which have ‘B+’.
Even at the beginning of the year 2020, the Kenyan banks already had a weak asset quality, predicting hard economic statues in the year and low loan growth.
The 12% sector’s NPL ratio recorded at the end of 2019 will continue to increase as long as the current disruption of businesses and households is active to the pandemic. The report also stated that most vulnerable sectors were,” (18 per cent of the sector’s gross loans at end-2019), personal lending (17 per cent), real estate (16 per cent), manufacturing (15 per cent) and tourism (14 per cent).’’
Besides, the report stated that loan impairment charges are already eroding profitability and that its annual rate of consumption was at 40% of the pre-impairment profits on average for the largest banks in 1H20. This was noted to be an increase from 17.5% recorded in the same period last year.
In the latest data by the Central Bank of Kenya (CBK), there has been an increase in the number of borrowers defaulting on loan repayment to 13.6% in August from 13.1 that was recorded June. This was said to be the highest since the year 2017 when the default rate was at 14.1 %.
Speaking at a post, the CBK governor Patrick Njoroge said that the growth of non-profitable was highest in real estate, personal, transport and communication sectors, due to a subdued business.
The Covid-19 dues relief plan announced by CBK on March 18 saw loans total to Sh1.12 trillion representing 38% of the banking sector loan book of Sh2.9 trillion restructured by the end of August. This was said to be an increase from Sh844. 4 billion of total loans restructured in June, representing 29% of the total loan book.