Kenya Tops in African Banks Bad Loan Study

Photo: Capital FM
Kenyan Shillings.
2 December 2018

Kenyan banks' non-performing loan (NPL) ratios are among the most elevated among major economies in Africa, and are likely to be exacerbated by continued delays in payment by government to contractors and suppliers who owe lenders billions of shillings.

Global ratings agency Moody's says in a new report on African banks that weak risk-management practices in the past have also contributed to the fairly high dud assets ratios among African banks, with many of those assessed lying above 10 percent.

Latest Central Bank of Kenya (CBK) data shows the ratio of bad loans to total loan book among Kenyan banks stood at 12.3 percent at the end of October, having come down from 12.7 percent in August largely due to improved recovery efforts on the trade, personal and household sectors.

Out of 11 African countries profiled by Moody's in the report, only Angola, Ghana and Democratic Republic of Congo have a higher ratio than Kenya, at about 25, 22 and 18 percent respectively.

"Government arrears remain high (five per cent of GDP on average, according to IMF estimates), hurting the loan repayment capacity of contractors and sub-contractors of government projects. Risks are compounded by the fact that-in some cases -problematic direct and indirect exposures to the government are not classified as nonperforming," said Moody's in the report.

Other countries profiled include Egypt, Mauritius, Morocco, Nigeria, South Africa, Tanzania and Tunisia.

The ratings agency added that the introduction of new IFRS 9 accounting standards across most African countries signals a rise in loan-loss provisioning coverage, thus cutting the risk associated with bad loans.

Kenyan lenders have already adopted these accounting standards, although most have been cutting their provisions in spite of the rising NPL load.

While Moody's also flags foreign-currency loans to borrowers as a potential problem due to local currencies depreciation, Kenyan banks would be fairly insulated from this risk given that most of their lending is in shillings.

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