Kenya’s Biggest Bank Doubles Provisions as Credit Sours

  • Non-performing loans rise 43 percent to 26.4 billion shillings
  • Loan-loss provisions up 149 percent to 1.37 billion shillings

KCB Group Ltd., owner of Kenya’s largest bank, more than doubled loan loss provisions as non-performing credit jumped by 43 percent.

The bank with operations in seven African countries said bad loans increased to 26.4 billion shillings ($262 million) in the three months through March, from 18.5 billion shillings a year ago, according to a statement e-mailed by the Nairobi Securities Exchange Thursday. The lender posted a 6 percent rise in first-quarter profit to 4.63 billion shillings.

As much as 90 percent of the bad loans had been extended to two main clients, who supply national and regional governments, Chief Executive Joshua Oigara told reporters in the capital, Nairobi.

“Those two customers should be OK by the end of June,” he said. “We have 3 billion shillings’ worth of debt that we should be able to turn around in the second half.”

Kenyan central bank Governor Patrick Njoroge, who was appointed in June 2015, has told lenders that they have been provisioning insufficiently for bad debt in East Africa’s biggest economy. The central bank says the industry’s non-performing loans were equal to 8.2 percent of total loans in April. Oigara said KCB is targeting 6 percent on NPLs by the end of the year.

Loan Recovery

For the past five years, KCB’s bad-loan recoveries have improved in the second half, according to Francis Mwangi, head of research at Standard Investment Bank, helping the lender to redeem about 2 billion shillings in non-performing credit.

“It all depends on how their NPLs perform in the year and how much they can recover in the year as well,” he said by phone from Nairobi.

Rival Standard Chartered Bank Kenya Ltd. reduced provisions by 12 percent to 728 million shillings in three-month earnings announced on Wednesday. Its total non-performing loans and advances jumped 84 percent to 15.4 billion shillings.

KCB extended 345.9 billion shillings of credit during the three months through March, 16 percent more than a year ago. Net-interest income grew 24 percent to 11.5 billion shillings.

KCB shares rose 2 percent to 40 shillings on Thursday, paring their year-to-date loss to 8.6 percent.

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