Kenyan Commercial Banks tightened their purse strings in 2022 due to fears surrounding the possible resurgence of new COVID-19 infections and the long-term effects of the pandemic.
According to the latest quarterly Credit Officer Survey by the Central Bank of Kenya (CBK) for the period ending December 31st 2022, 94% of senior credit officers of banks interviewed said COVID-19 led to tightening credit standards during the last three months of 2022.
Credit standards are guidelines used by commercial banks in determining whether to extend a loan to an applicant.
In the quarter that ended December 31st, 2022, the Survey found that eight factors had little impact on credit standards.
Investment in Government Securities, Competition from other banks, and an increase in the Central Bank Rate are the main factors that had no impact on credit standards. These were reported by 84 per cent, 82 per cent and 79 per cent of the respondents, respectively.
The Central Bank of Kenya undertakes a quarterly Credit Officer Survey to identify the potential credit risk drivers.
The Survey requires senior credit officers of banks to indicate their banks’ perception or actual position in the immediate past quarter and the subsequent quarter in terms of demand for credit, credit standards, asset quality,
credit recovery efforts, deployment of liquidity and impact of implementing new standards. Thirty-eight operating commercial banks and one mortgage finance company participated in the Commercial Banks Credit Officer Survey.
According to the CBK, the Kenyan Banking Sector recorded growth in the quarter that ended December 31st, 2022, compared to the quarter that ended September 30th, 2022.
The industry’s total balance sheet increased by 2.8% to KSh 6,596.6 billion in December 2022 from KSh6,415.1 billion in September 2022. Gross loans increased by 2.3% from KSh 3,594.7 billion in September 2022 to KSh 3,677.3 billion in December 2022.
This spike in gross loans was primarily seen in the Manufacturing, Personal, Household, and Real Estate sectors, where banks granted more credit for working capital purposes as well as loans disbursed to individual borrowers.
The Banking industry increased its total deposits by 2.3% from KSh. 4,626.0 billion in September 2022, to KSh. 4,730.1 billion in December 2022, while the gross non-performing loans to gross loans ratio improved from 13.7% in September 2022 to 13.3% in December 2022.
The industry’s quarterly pre-tax decreased by KSh10.1 billion from KSh 67.2 billion in September 2022 to KSh.57.2 billion in December 2022. This decline in profitability was mainly attributable to a higher increase in quarterly expenses by KSh19.4 billion compared to the rise in quarterly income by Ksh.9.3 billion.
At the end of the first quarter of this year, running up to March 31st 2023, banks expect to intensify their credit recovery efforts in eight economic sectors and remain constant in three industries (Mining and Quarrying, Energy and Water, and Financial Services). The intensified recovery efforts aim to improve the asset portfolio’s overall quality.
The main sectors that banks intend to intensify credit recovery efforts include Personal and Household (74 per cent), Trade (72 per cent), Manufacturing (71 per cent), Transport and Communication (69 per cent), Building and Construction (68 per cent) and Real Estate (68 per cent).
Senior credit officers, or 54% of those interviewed, indicated that Non-Performing Loans(NPLs) for Banks are likely to drop in Q1 2023 due to aggressive loan recovery efforts being implemented by most banks. On the other hand, 23% of the respondents expect the NPL levels to worsen in the first quarter of this year.
