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CBK backs banks to lift growth despite lending risks – KBC | Kenya’s Watching


The Central Bank of Kenya (CBK) is now looking up to commercial banks to propel growth this year with improved lending despite threats of rising bad loans owing to uncertainties surrounding a possible second wave of COVID-19.

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A day after retaining key lending rate at 7% in sixth successive sitting by the Monetary Policy Committee on Wednesday essentially cushions borrowers from higher loan charges, CBK Governor Dr. Patrick Njoroge projects Non-Performing Loans (NPLs) to increase further by the end of the first quarter in March 2021 as customers struggle to service their loans.

Assuming that benefits of reopening the economy does not come through for another three months, we calculated that NPLs will rise maybe to 16%-17% of gross loans. Those numbers are still manageable” said Dr. Njoroge.

As at the end of December last year, the ratio of gross NPLs to gross loans had risen from 13.6% in October to 14.1%, which is equivalent to Kshs. 423 billion out of the Kshs. 3 trillion banking sector loan book.

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While dispelling fears that the sector could crumble on the backdrop of increasing credit risks brought about by the pandemic, Dr. Njoroge said the banking sector remains resilient with improved liquidity and capital adequacy ratios.

Banks have been conservative and made provisions for their loans. In this regard if indeed you thought of the NPLs we have at this moment and excluded provisions banks have already made, that number would be something like 5.7% of gross loans,” He added.

CBK attributes the increases in NPLs to the subdued business environment, and banks continuation to make provisions to cover the bad loans.

Total loans amounting to Kshs. 1.63 trillion had been restructured by close of last year in line with emergency measures the regulator deployed on 18th March 2020 to provide relief to borrowers.

As a result of the  lowered Cash Reserve Ration (CRR), the amount of cash banks deposit with central bank, Kshs. 35.2 billion was released to support lending in March when the pandemic was announced in Kenya.

Personal and household loans amounting to Kshs. 333.0 billion had been restructured through extension of repayment period.

For other sectors, a total of Kshs. 1.29 trillion had been restructured mainly to trade (21.3 percent), manufacturing (20.4 percent), real estate (15.4 percent) and agriculture (12.4 percent).

The National Treasury projects the economy to recover and grow by an estimated 6.4% in 2021 and above 6.2% over the medium term after contracting to 0.6% last year.

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