Agnistio Lenders are banking on expected economic recovery to unwind Sh1.4 trillion worth of bad loans amid warnings that some loans will have to be written off.

Director of research at Kenya Bankers Association (KBA) Samuel Tiriongo says the fate of the bad loans is tied to economic recovery.

“All the restructured loans are likely to see a reversal in the next two quarters,” said Tiriongo.

About 60 per cent of the loans were issued to MSMEs while 30 per cent were issued to large corporations.

Tiriongo noted that there is a need to appropriately price risk to allow good performing sectors of the economy to access credit.

He said 86 per cent of the loans were restructured based on repayment period while the rest had their interest payments postponed.

Economic growth

The economy is expected to grow by 6.4 per cent according to the Treasury while the World Bank expects a 6.9 percent recovery. Global credit rating agency Moody’s however expects 5 percent economic growth.

Banking sector analyst George Bodo of CallStreet Capital says some of the loans may never be recovered since some businesses shut down while some people were fired or their salaries were cut.

“All depends on economic recovery otherwise writing off all these loans will adversely weaken their balance sheets, however some business shut forever while some people who were fired may never be rehired,” said George Bodo.

Most of the sectors whose loans were restructured include personal loans, trade, real estate and manufacturing. Most businesses are struggling because consumers do not have spending power having lost their incomes.

A study Kenya Private Sector Association in the last quarter last year shows that 43 per cent of businesses expect recovery in 2021 while 23 expect a recovery in 2022 while 50 percent remained closed in third quarter of last year.

These economic recovery projections are however based on assumptions that there will be rainfall since 35 percent of Kenya’s GDP is agriculture based.