Listed banks grapple with worsening asset quality issues

Tougher lending environment and monetary stance have resulted to listed banks in the country recording a decrease in asset quality in this year’s third quarter.

A new report has shown the weighted average gross non-performing loan ratio (NPL) increased by 0.5 per cent points to 13.6 per cent, from 13.1 per cent recorded in the same period last year.

As a result, seven out of the 10 listed banks in the country recorded an increase in NPL ratio in the period reflecting a tougher lending environment in the country.

An NPL is a loan that a borrower is unable to pay or is in a situation that makes it difficult to.

A report by Cytonn investments highlighted that the negative growth increased as a result of tough business conditions, increased borrowing costs, and a decline in lending due to elevated credit risks.

“This was evidenced by the Q3’2024 Purchasing Managers Index (PMI) averaging 47.8, below the 48 averages in Q3’2023, signaling a worsening economic environment,” the report reads. Most commercial banks invested in government securities at slightly higher rates due to the high yields thereby making it difficult for borrowers to access loans.

Borrowers were also limited in terms of making deposits as a result of low money circulation stemming from reduced purchasing power, delayed payment of tenders and high operation costs.

At the same time Absa Group’s NPL ratio rose by 2.8 per cent points to 12.6 per cent from 9.8 per cent in Q3’2023, while Kenya Commercial Bank (KCB) Group’s NPL ratio increased by 2.0 per cent points to 18.1 per cent, from 16.1 per cent in Q3’2023.