Kenyan Banks Hit By Bad Loans – Covid-19 Forces Increase in Loan Provisions
After years of making super normal profits, the banking sector is stuttering in this financial year. There are a lot of reasons for this but the major excuse the companies give is the Covid-19 pandemic.
Equity and KCB both lifted provisions in the first six months of 2020 to brace with the harsh economic environment that has severely affected lending.
We assessed that the Covid-19 health pandemic would be a medium-term situation until a pharmaceutical solution or vaccine was found. The health protocols of coping and managing by staying at home, social distancing, washing hands and sanitizing while wearing masks would disrupt production, shock supply chains and degenerate into an economic crisis.
In light of the markets we operate in being characterized by a thriving real estate, tourism, travel, private education, transport, logistics, trade and commerce, we have determined that 45% of our clients’ loans would need flexible accommodation on loan repayments. Our future as a bank will be defined by who we support our customers both individuals and enterprises to become, said Dr. Mwangi.
KCB Group has posted KSh 7.6 Billion in its 2020 half-year net earnings, a 40% decline from the previous period last year.
This subdued performance is attributed to huge provisions made on its loan book to cover the high loan default rates due to disruptive effects of coronavirus on its borrowers.
The first lender to release its H1, 2020 financials, KCB’s performance provides a sneak preview into the stress levels the industry is experiencing as a result of the pandemic.
During the past six months, the lender has restructured facilities worth KSh 101 billion to shield distressed borrowers against effects of the pandemic.
Some analysts believe that Kenya’s top banks are unlikely to pay dividends for the year unless there is a turn around performance in the second half of the year. Meanwhile, the Central bank urges lenders to table discussions on their capital adequacy with the regular before making dividend decisions for the year.
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