The banks have recorded the lowest 11-month pre-tax profit in 8 years due to the Covid-19 disruption that greatly affected the banking sector, which has previously experienced substantial growth in their earnings.
The current data from the Central Bank of Kenya reveals that the pre-tax earnings in the ended November 2020 dwindled by 28.2 percent to Sh107.7 billion from Sh150.1 billion posted a year earlier.
Ever since 2012, when the banking sector made ash. 98.8 billion return, this is the lowest 11-month pre-tax earnings earned by the banking.
NCBA, Standard Chartered Bank Kenya, I&M Holdings, Cooperative Bank of Kenya, DTB, and Absa Kenya have all exuded profit warnings, indicating they anticipate more than a 25 percent fall full-year net earnings.
Covid-19 disruptions led to increased loan defaults and applications for extension in the repayment period due to firms recording falling revenues, retrenchments, and salary reductions, which led to a decrease in the profits recorded.
As a result of the imposed strict measures to win the fight against the spread of Covid-19, Kenya experienced slowed economic activities and increased debt. As a result, the banks’ recorded a weaker financial performance.
In a period of ten months to December 2020 alone, banks reported sh. 73.05 billion defaults by bank borrowers due to economic hardships and the massive salary deductions and retrenchments that affected the pandemic.
Data extracted from CBK indicated that the worth of the loans reneged hit Sh423 billion or 14.1 percent of the total Sh3 trillion loan book in December, illustrating a sharp increase from Sh351.73 billion that was in default by the end of March.
Since the confirmation of the first case of Covid-19 in March 2020, borrowers have been facing tough economic times resulting in their inability to honor loan repayments.
The loan defaults had increased the non-performing loans (NPLs) ratio to 14.1%, which is currently the highest since August 2017 when it was 14.41%.
The ascending NPLs are conscious that banks allowed customers to extend repayment periods on loans valued at Sh1.63 trillion by the end of December, which corresponds to 54.2 percent of the total loan book.