In 2015 Kenyan banks have reported growth in non-performing loans (“NPLs”). Consequently, the provision for NPLs has increased leading to a decline in the banking industry’s performance.
In our view there are several reasons that led to an increase in NPLs:
- Increased competition in the bankingindustry resulting from a large number of banks and other financial institutions including mobile money platforms which compelled lenders to be lenient on their credit polices.
- Hard economic environment in 2015which adversely affected borrowers’ debt repayment capability.
- Lenient credit policies due to severecompetition within the banking market and the ‘flight to quality’ may have resulted in weaker due diligence prior to issuing loans.
- Strict enforcement of 2013 PrudentialGuidelines since the new Central Bank of Kenya (CBK) Governor, Dr Patrick Njoroge came on board.
- Most importantly though is that thereis a tradition to accelerate and enforce when seeking repayment, rather than Turnaround and manage a client back to health. It has been shown across the globe that embracing the Global Turnaround Culture saves jobs and provisions. We see this as the way forward especially noting the new Insolvency Law and the Government’s desire to RESCUE BUSINESSES rather than liquidate.