Borrowers start paying 90% of coronavirus bank loans again

Capital markets

Borrowers start paying 90% of coronavirus bank loans again


Banks have seen customers resume normal payments on 90% of loans that have been restructured following the Covid-19 pandemic. FILE PHOTO | NMG

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Summary

  • This eased the pressure on the lender‘s capital in addition to increasing its revenues, with many institutions posting record profits for the year ended December.
  • Banks are required to make provisions for actual and expected credit losses, the requirement aimed at ensuring that they can withstand adverse economic conditions.
  • Loan recovery was the main driver of bank profits last year thanks to a reduction in the provision for bad debts.

Banks saw customers resume normal payments on 90% of loans that were restructured following the Covid-19 pandemic in early 2020.

This eased the pressure on the lender’s capital in addition to increasing its revenues, with many institutions posting record profits for the year ended December.

“Fears about deteriorating asset quality have not crystallized as originally expected. A faster than expected economic recovery, coordinated fiscal policy, monetary and prudential interventions have averted a marked escalation in non-performing loans,” NCBA Group Chairman James Ndegwa wrote in the bank’s latest annual report.

“In fact, around 90% of the 1.6 trillion shillings loans have been restructured in 2020, normalizing to a performing book by the end of 2021.”

Banks are required to make provisions for actual and expected credit losses, the requirement aimed at ensuring that they can withstand adverse economic conditions.

Loan recovery was the main driver of bank profits last year thanks to a reduction in the provision for bad debts.

The reduction in the provision for loan losses reflects the gradual resumption of debt repayment amid recovery from the Covid-19 economic difficulties that triggered layoffs, job cuts and business closures.

Kenya’s eight largest banks nearly halved their loan loss provisions last year, boosting their combined net profit by 80.29% to 132.41 billion shillings.

KCB #ticker:KCB , Equity #ticker:EQTY , Co-op Bank #ticker:COOP , Absa Bank Kenya #ticker:ABSA , NCBA, Standard Chartered Bank Kenya #ticker:SCBK , DTB #ticker:DTK and Stanbic Holdings #ticker :SBIC has cumulatively reduced provisions to 55.93 billion shillings during the reporting period, from 106.94 billion shillings in 2020, reflecting a decline of 47.69% or 51 billion shillings.

Lower loan loss provisioning helped most banks post double- or triple-digit earnings growth and usher in a dividend boom.

KCB, whose net income rose 74% to 34 billion shillings, cut its provisions by 52.2% to 12.9 billion shillings in the year ended December.

Meanwhile, its stock of bad debts has fallen from 96.6 billion shillings to 122.8 billion shillings.

Absa Bank Kenya, whose net profit increased by 161% to 10.8 billion shillings, reduced its provisions by 47.8% to 4.7 billion shillings. Its bad debts increased from 17 billion shillings to 19.8 billion shillings.

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