(Ecofin Agency) - According to Kenyan banks, though moderate, inflation will still be high. So, combining that prospect of weaker economic growth, they are already anticipating a decline in profit margins.
In Kenyan, lending companies expect inflation to stabilize at around 7.5% this year, slightly higher than the 6.8% observed last year.
To curb that inflation, the central bank has raised its key interest rates, like many African countries are doing, making loan repayment difficult. Against this backdrop, bad debts in the Kenyan banking sector rose for the third consecutive month, reaching Ksh540.8 billion ($3.9 billion) in March 2023. The defaulters are mainly in the industrial, real estate, construction, and retail sectors.
The bad debts represent a record 14.6% of lending companies’ loan portfolio, a situation likely to affect profit growth in the sector this year.
To address the situation, the major banks, including Equity, KCB, Co-operative Bank of Kenya, Stanbic Bank, and I&M Bank, made additional provisions for credit losses. But it is uncertain whether other banks have the resources to do so.
According to the Kenya Bankers Association (KBA) quoted by local media, persistently high inflation and weak economic growth could further exacerbate the negative loan loss ratio. And there is a risk that higher rates would make it hard for borrowers to pay their loans.