HIGH interest rates and a tough business environment led to a 6.9 per cent increase in non performing loans during second quarter 2014, the latest banking sector report shows.
The industry report for April to June 2014 compiled Central Bank of Kenya shows that bad loans increased from a total value of Sh95.1billion as at end March to Sh101.7 billion during quarter two.
"During the period under review, 8 out of 11 sectors registered increase in NPLs... the spill-over effects of high lending interest rates and challenges in the business environment contributed to increase in NPLs," said the CBK report.
Trade sector had the highest number of non performing loans accounting for 26.9 per cent of all bad loans followed by personal credit at 23.9 per cent. Mining and quarrying had the least number of bad loans at 0.6 per cent.
The sector recorded a half year pretax profit increase of 15.6 per cent from Sh61.47 billion as at end June 2013 to Sh71.04 billion this year.
The profit before tax for the quarter alone was Sh37.6 billion compared to Sh33.4 netted by end March.
Assets of the banking sector which comprised largely of loans and advances stood at Sh2.97 trillion over the period compared to 2.82 trillion in March.
Loans and advances totalled Sh1.78 trillion, a modest 5.3 per cent rise from Sh1.69 trillion in the previous quarter.
Cumulative capital for the sector rose by 2.3 per cent to Sh436.6 billion from Sh426.6 billion in March.
Total deposits were Sh2.15 trillion, rising by 5.4 per cent from Sh2.04 in quarter one. Bank deposit accounts were 25.3 million while loan accounts stood at 3.8 million.
The report gave a positive outlook for the banking sector in the second half of the year.
"The banking sector is expected to sustain its growth mainly supported by the branch expansion, regional integration initiatives, advances in information and communications technology and the adoption of the devolved governance system in Kenya," said the CBK.