The largest number of banking sector gross loans and advances were channelled through real estate, manufacturing, personal/household, and trade according to the Central Bank of Kenya’s bank supervision annual report 2017. The reports says that this is as a result of delayed payments from public and private sectors as well as slow uptake of housing units. The sectors accounted for 73.08 per cent of gross loans in December 2017 compared to 70.89 per cent in 2016.
“A challenging business environment witnessed during the period under review impacted negatively on the quality of loans and advances. This was attributed to among other factors; delayed payments from public and private entities, uncertainties due to elections and poor weather conditions. As a result, non-performing loans (NPLs) increased by 23.4 per cent to Sh264.6 billion in December 2017 from Sh214.3 billion in December 2016,” the report reads.
In addition, the average banking sector liquidity ratio as of December 31, 2017, stood at 43.7 per cent compared to 40.3 per cent in 2016. The surge was as attributed to higher growth in total liquid assets compared to growth in total short-term liabilities.
In the same year, profit before tax dropped 9.6 per cent to Sh133.2 billion compared to Sh147.4 billion in 2016. On the other hand, total income dropped 3.1 per cent from Sh502 billion in December 2016 to Sh486.3 billion in December 2017. The decline was due to interest on advances which dropped Sh33.5 billion.
Banking sector expenses dropped 0.5 per cent to Sh353.1 billion in December 2017 from Sh354.9 billion in December 2016 while foreign exchange trading surged 15 per cent to Sh27.6 billion in 2017 from Sh24 billion in 2016.
“The banking sector was on overall rated satisfactory in 2017 as compared to a strong rating which was achieved in 2016. The decline in the industry overall rating was mainly due to a decline in capital adequacy and a deterioration in asset quality in 2017. The institutions rated strong, satisfactory, fair and marginal in December 2017 were 9, 16, 12 and 3 respectively,” CBK says in the report.