| NAIROBI, April 4
NAIROBI, April 4 Kenyan lenders look set to
chalk up more bad debts after they ticked up last year as higher
rates bit and payments were withheld from government contractors
during the east African country's political transition.
But the short-term pain may herald long-term gain as another
factor has been added to the bad loan mix - stricter enforcement
by the central bank of its own prudential rules.
This holds out the promise of greater transparency as
investors will obtain a more accurate view of the state of the
books and the quality of bank debt.
"It will be very clear when looking at the numbers that
these are the true numbers of non-performing loans, and
therefore when reviewing a bank you can take a bolder position,"
said Francis Mwangi, an analyst at Standard Investment Bank.
He also said a more no-nonsense enforcement would help
ensure banks are more prudent when it comes to lending. "Much
more importantly, it means banks have to be watchful about their
Kenyan lenders reported 80.6 billion shillings ($932.33
million) in non-performing loans last year, 5 percent of total
lending, up from 4.7 percent in the previous year, according to
the central bank.
Analysts said the data, although no cause for alarm, opened
the banks up to increased scrutiny, after five years of stellar
growth in which some lenders doubled their loan books.
"It is something that one needs to continue assessing
especially as credit is picking up," said Ragnar Gudmundsson,
the International Monetary Fund's representative in Kenya.
Bankers partly blame the stricter application of central
bank rules on debt tolerance for the rise in known bad debts.
Joshua Oigara, chief executive of KCB Bank, and his
counterpart at Equity, James Mwangi, said they were
now required to write back distressed loans once they had been
serviced for six months, up from a period of three in the past.
Other sources in the banks who did not wish to be named said
what had really happened was that the central bank had started
ensuring that rule, which was always on the books, was now being
followed more closely.
The end result will be a rise in bad loans - or a more
accurate reflection of the situation. "(Bad debts) are obviously
going to grow because of the new regulations," said Ochieng
Oloo, publisher of Kenya's annual banking survey.
Central Bank Governor Njuguna Ndung'u said the rule on
reporting of bad debts was always contained in the prudential
guidelines, declining to comment on whether enforcement had been
stepped up in 2013.
COMPOUNDING THE EFFECTS
Tighter regulations or stricter enforcement compounded the
trailing effects of the country's macro-economic shocks of 2011,
which sent commercial rates rocketing past 25 percent, and the
impact of a political transition after elections in March.
KCB, which is the largest lender by assets in East Africa's
largest economy, said its non-performing loans jumped to 8.1
percent last year from 6.7 percent.
Equity, ranked as the biggest bank by the number of
depositors, saw its bad debts jump to 5.19 percent from 3.1
percent in the previous year.
Oigara said some KCB customers faced difficulties after
government payments were delayed by several months.
The outgoing government of then-president Mwai Kibaki
stopped paying contractors well before the March 2013 election
to prevent irregularities - such as payments for goods never
supplied - while attention was diverted by the transition.
President Uhuru Kenyatta took several months after his April
swearing-in ceremony to form a proper government, meaning
contractors were only paid in the fourth quarter.
The delays had a knock-on effect on the sensitive building
and construction sector, Oigara added.
Executives in the industry said they were hopeful their bad
debts would start to fall with this chapter behind them.
"By June, we are very confident that NPLs will come back to
around 4 percent or below 4. Most of them have started
performing but we are unable to mark it as performing because we
have to wait for six months," Mwangi, the CEO of Equity, said.
He said he expected the bank to close this year with bad
debts at the traditional level of around 3 percent.
Oloo, the publisher of the banking survey, cast doubt on
this sort of benign forecast. "With the high interest rates that
were there, there is a pack of non-performing loans that many
banks are holding at the moment and it will take a while before
banks are able to get them out of their books."
Habil Olaka, chief executive of the Kenya Bankers
Association (KBA), defended the lenders, saying there was no
cause for concern. "We haven't even developed a trend yet," he
said, adding the numbers were for just one year.
He also blamed the rise in bad debts on banks diversifying
to tap into high-yield segments like lending to small and medium
enterprises (SMEs) "where the real opportunities are".
"The downside is that you are bound to incur more exposure
to credit risk," he said.
KCB has been shifting to lending to SMEs and consumers in a
bid to diversify its loan book, which is traditionally focused
on big firms who borrow in dollars and pay low interest rates.
($1 = 86.4500 Kenyan Shillings)
(Editing by Ed Stoddard and Mark Heinrich)