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Published Monday, September 10, 2018 22:00

By Timothy Odinga

 

The loan loss provision by Kenyan banks fell 33 per cent in the first-half of 2018 despite a rise in bad debts, new data showed, an indication that lenders are confident of offsetting the risk of recoveries.

The loan loss provision conventionally covers diverse factors related with potential loan losses including Non-Performing Loans (NPLs) or simply bad loans, customer defaults and renegotiated terms of a loan that incur lower than previously estimated payments.

Analysis of financial fillings by individual banks showed that cumulative provision for loan loss in the six months between January and June this year dipped to Sh12.9 billion compared to Sh19.46 billion recorded over a similar window of 2017. Five of the 39 commercial lenders reported a reduction in loan loss provisions by over Sh1 billion each.

This came as the cumulative loan book for all banks climbed to Sh2.4 trillion for the six months to June 2018 from Sh2.36 trillion in a similar period of 2017.

Contrastingly, the lenders registered an increase in NPLs to Sh300.6 billion in the six months to June compared to Sh240billion over a similar period of last year — an equivalent of a 25 per cent jump.

Under a new international accounting standard, IFRS 9's, commercial banks are obligated to constantly list any expected credit loss (ECL) to improve the accuracy of their financial status. For example the expectation is that whenever a lender’s NPL ratio deteriorated, there has to be a corresponding rise in provision to cover such risk.

Co-operative Bank  for instance had its bad loans at Sh28.21 billion in the first-half of 2018 compared to Sh12.22 billion over a similar period last year, marking a 130 per cent growth. CFC Stanbic  and I&M Bank  also had bad loans jumping by enormous amounts of Sh4 billion and Sh11.4 billion in the first-half of 2018 respectively... continue reading

Source: Business Daily

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