This archive report was first published on 22 November 2019.
As of August 2019, non-performing loans in Kenyan commercial banks had risen to 12.6%, up from 5.6% in August 2015, according to the Central Bank. This trend is concerning, especially given the country's economic growth, which is forecasted to be around 6% this year, driven by public sector development and infrastructure spending.
One of the major banks in Kenya, Equity Bank, has seen its NPLs increase from KSh 26.5 billion to KSh 30.6 billion by the end of September, as reported by Kenyan Wall Street. Moody's Investors Service has warned that the rising NPL ratios indicate pressure on the banks' solvency, which is a credit negative.
The Central Bank's report highlights the disconnect between infrastructure spending and its impact on citizens' lives. Delayed payments to contractors have left Small and Medium-sized Enterprises (SMEs) struggling to stay afloat, with over KSh 310 billion owed to them by April 2019, as reported by The Star. High tax charges and operating expenses have also led corporates to cut down operations, resulting in fewer job opportunities and reduced income.
Regulatory changes in the banking sector, such as the repeal of the interest rate cap, might help reverse the NPL trend. A prior report by Kenyan Wall Street suggests that the interest rate cap repeal will improve the pricing of loans and grow the SME loan book.
