Lower loans loss pro­vi­sions sig­nal ris­ing con idence

Five of the 39 lo­cal banks cut their bu er against bad loans by over Sh1 bil­lion de­spite a cu­mu­la­tive sec­tor rise to Sh300.6bn in irst half

Business Daily (Kenya) - - FRONT PAGE - Tim Odinga tnyabera@ke.na­tion­media.com

Five of the 39 lo­cal banks cut their bu er against bad loans by over Sh1 bil­lion each de­spite a cu­mu­la­tive sec­tor rise to Sh300.6bn in irst half.

The loan loss pro­vi­sion by Kenyan banks fell 33 per cent in the first-half of 2018 de­spite a rise in bad debts, new data showed, an in­di­ca­tion that lenders are con­fi­dent of off­set­ting the risk of re­cov­er­ies.

The loan loss pro­vi­sion con­ven­tion­ally cov­ers di­verse fac­tors re­lated with po­ten­tial loan losses in­clud­ing Non-per­form­ing Loans (NPLS) or sim­ply bad loans, cus­tomer de­faults and rene­go­ti­ated terms of a loan that in­cur lower than pre­vi­ously es­ti­mated pay­ments.

Anal­y­sis of fi­nan­cial fill­ings by in­di­vid­ual banks showed that cu­mu­la­tive pro­vi­sion for loan loss in the six months be­tween Jan­uary and June this year dipped to Sh12.9 bil­lion com­pared to Sh19.46 bil­lion recorded over a sim­i­lar win­dow of 2017. Five of the 39 com­mer­cial lenders re­ported a re­duc­tion in loan loss pro­vi­sions by over Sh1 bil­lion each.

This came as the cu­mu­la­tive loan book for all banks climbed to Sh2.4 tril­lion for the six months to June 2018 from Sh2.36 tril­lion in a sim­i­lar pe­riod of 2017.

Con­trast­ingly, the lenders reg­is­tered an in­crease in NPLS to Sh300.6 bil­lion in the six months to June com­pared to Sh240­bil­lion over a sim­i­lar pe­riod of last year — an equiv­a­lent of a 25 per cent jump.

Un­der a new in­ter­na­tional ac­count­ing stan­dard, IFRS 9's, com­mer­cial banks are ob­li­gated to con­stantly list any ex­pected credit loss (ECL) to im­prove the ac­cu­racy of their fi­nan­cial sta­tus. For ex­am­ple the ex­pec­ta­tion is that when­ever a lender’s NPL ra­tio de­te­ri­o­rated, there has to be a cor­re­spond­ing rise in pro­vi­sion to cover such risk.

Co-op­er­a­tive Bank for in­stance had its bad loans at Sh28.21 bil­lion in the first-half of 2018 com­pared to Sh12.22 bil­lion over a sim­i­lar pe­riod last year, mark­ing a 130 per cent growth. CFC Stan­bic and I&M Bank also had bad loans jump­ing by enor­mous amounts of Sh4 bil­lion in net pro it re­ported by Kenyan banks in the irst six months of the year and Sh11.4 bil­lion in the first-half of 2018 re­spec­tively.

CFC Stan­bic had Sh10.55 bil­lion NPLS in the first six months, up from Sh6.48 bil­lion over a sim­i­lar pe­riod of last year while I&M Bank recorded Sh20.28 bil­lion in the first six months of 2018 com­pared to Sh8.86 bil­lion dur­ing a sim­i­lar win­dow of 2017.

NIC and KCB had the high­est drop in loans loss pro­vi­sions cut­ting theirs by Sh1.3 bil­lion and Sh1.184 bil­lion, re­spec­tively. NIC Bank’s bad loans pro­vi­sion stood at Sh0.11 bil­lion, down from Sh1.44 bil­lion over a sim­i­lar pe­riod last year.

KCB re­ported Sh0.82 bil­lion in pro­vi­sions com­pared to Sh2.01bil­lion over a sim­i­lar pe­riod of last year.

With a higher ra­tio of NPLS over the first-half of 2018, the ex­pec­ta­tion is that banks’ pro­vi­sion for bad loans would have climbed over the pe­riod. This hasn’t hap­pened — an in­di­ca­tion that they are con­fi­dent that the bulk of loan fa­cil­i­ties would be off­set.

The con­fi­dence may be partly at­trib­ut­able to the fact that the coun­try’s econ­omy is com­ing out of a thorny op­er­at­ing en­vi­ron­ment oc­ca­sioned by the ef­fects of a pro­longed elec­tion­eer­ing pe­riod last year, a bit­ing drought and a rate cap­ping law that sti­fled credit growth.

Indica­tively, Kenyan banks col­lec­tively earned Sh58.6 bil­lion net profit in the first six months, post­ing a 12.7 per cent growth--- tak­ing their prof­its back to pre-in­ter­est rate cap lev­els.

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