This archive report was first published on 8 September 2019.
Published on September 8, 2019, by Patrick Alushula, more by this author here.
Small banks in Kenya have made a surprising move by cutting their loan loss provisioning by nearly half in the six months ended June 2019. According to analysis of banks' half-year 2019 financial reports, the provisions of the 20 tier III lenders dropped from Sh1.99 billion in the comparative period in 2018 to Sh1 billion.
Despite this reduction, the stock of bad loans rose 39.8% to Sh52.4 billion from Sh37.5 billion in June 2018. The provisions are meant to serve as an allowance for uncollected loans and loan payments to cover eventualities such as customer defaults and renegotiated terms that yield lower than previously estimated payments.
Interestingly, tier III banks near halving of provisions was the largest compared to other banks in tier I and tier II, helping reduce the pace of operating expenses. This saw tier III lenders post a combined net profit of Sh2.96 billion from the loss of Sh254.7 million in half-year 2018.
Analysts had expected 2019 to see increased levels of loan loss provisions in the absence of last year's benefit of passing the provisions through balance sheet reserves during the switch to a new accounting standard. However, Genghis Capital, an investment bank, had forecast that tier I provisioning for NPLs to rise by 52.9% in 2019, while ICEA Lion Asset Management— a fund manager—said it expects momentum of profit growth to be weakened by higher provisions.
