Kenyan banks reported a steady rise in the pile of bad debts in the first three months of the year saddled by a slowdown in the real estate sector and increased retrenchment of formal sector workers, according to newly-released official data.
Gross non-performing loans (NPLs) rose 15.8 per cent to Sh170.6 billion in March compared to Sh147.3 billion in December, the Central Bank of Kenya (CBK) says in its first quarter industry report.
“Real estate sector recorded the highest increase in NPLs over the quarter by Sh5.9 billion or 42.3 per cent. This is attributable to slow uptake of housing units,” the CBK report says, adding that the pile of bad loans in the personal/household sector increased by Sh5.7 billion or 21.5 per cent between December 2015 and March 2016 “as a result of negative macroeconomic drivers such as job losses and delayed salaries.”
Besides a turbulent labour market and tapering demand for new housing units, the spike in bad debts was also driven by a general slowdown in activity in other economic sectors, including trade and manufacturing.
A growing stock of bad loans means banks’ profit margins will be squeezed in the short term saddled by a corresponding increase in loan loss provisions to absorb order accutane from canada potential losses in their balance sheets.
The 42.3 per cent rise in the property market’s NPLs to Sh19.7 billion indicates that developers have satisfied a large part of the pent-up demand for commercial and residential housing.
The real estate boom that has been under way for more than a decade has attracted major investments, with Nairobi alone approving more than 250 buildings plans valued in excess of Sh18 billion each month.
The building boom has been driven by insurers, investment firms and wealthy individuals, some of whom have taken large loans to undertake multi-billion-shilling projects in the major towns.
A slowdown in the property market risks to specifically hurt lenders with a huge exposure to the industry.
HF Group, one of the biggest financiers of the real estate sector, says it derives most of its earnings from that industry through provision of mortgages and project finance.
The lender’s gross bad debts rose to Sh4.5 billion in March from Sh4 billion in December, mirroring the growth of doubtful loans across the banking sector.