The amount of non-performing loans (NPLs) in April hit KES 724.2 billion, up 1% from KES 717 billion in the previous month, despite the strict steps taken by commercial banks to collect funds from problematic borrowers.
Commercial banks’ total gross loans were KES 4.11 trillion, a slight drop from KES 4.12 trillion in March. From 17.4% in March, the non-performing loan to gross loan ratio increased to 17.6%.
According to the Central Bank of Kenya’s Monetary Policy Committee report in April, the increase in NPLs was mainly driven by a difficult commercial and operational environment.
Additionally, the government has also been noted as a major contributor to the rise in delinquent loans due to delayed payments to contractors. Commercial banks now prefer lending to the government over lending to the private sector due to the lower risks associated with the government compared to the private sector. This brings about the crowding out of the private sector.
Crowding out effect On NPLs
Crowding out of the private sector occurs when the government borrows heavily from financial markets or commercial banks, thereby pausing a stiff competition for individual borrowers and businesses. High demand for loans by the government leads to higher interest rates, making it very costly for the private sector to borrow. This leads to a decrease in spending and investment in the private sector.
Commercial bank rates
In April, the average rate of deposits in commercial banks stood at 8.9%, a 1.9% decrease from 10.8% in April 2024. Interest rate on savings decreased to 3.7% from 4.1% YoY. The average lending interest rate fell to 15.7% from 16.5% in the same period. Average Interest in overdrafts reduced to 14.1% from 16.4% in April 2024.
Gross deposits by commercial banks in April went up by KES 15 billion to KES 5.71 trillion from KES 5.69 trillion in April 2024. The average liquidity ratio increased by 4.56% to 57.9% from 53.3% in April 2024, while banks’ profit before tax hit KES 98.2 billion, up from 95.9 billion in April 2024.
Also Read: Bank of Kigali (BK) FY2024 Profits Surge as Loan Book Expands
