Banks project rise in bad loans

Commercial banks have projected an increase in bad loans advanced to the Agriculture, Tourism and household sectors this year on account of rife insecurity, poor weather as well as high cost of living.

Lenders also anticipate poor repayment of cash extended to the transport sector as players battle to implement new transport regulations that may slow down their output.

Central Bank of Kenya credit survey for the 2014 second quarter to June said lenders intend to intensify recovery efforts in the third quarter of the year in an attempt to improve the overall quality of their asset portfolio.

The quarterly study released Monday, was introduced in 2012 by the banking regulator in order to identify potential shocks and enhance understanding of credit risk in the banking industry.

CONSTANT STANDARDS

CBK said that credit standards were constant across all economic sectors in the period under review although the same was tightened for the tourism and agriculture sectors.

“The banks expect NPLs to remain constant across the economic sectors in Q3 of 2014. However, banks foresee increasing NPLs in trade, tourism, transport and personal/household,” the CBK survey reads. Political risk and economic activity contributed to tightening of credit standards by 13 per cent and 12 per cent respectively, according to the survey conducted on all the 43 commercial banks.

The institutions also tightened credit standards to the energy, trade and financial services sectors marginally by 2 per cent each.

RATION OF TOTAL LOANS

Overall, gross loans and advances in the banking industry are said to have grown by 5.3 per cent from Sh1.69 trillion in March 2014 to Sh1.78 trillion in June.

The ratio of total loans to total assets for the banking sector in the period under review was 59.47 per cent, an increase from 59.3 per cent, the previous quarter.