So banks in the country have been posting billions of shillings even as the economy and millions of Kenyans struggled in the past five years. But all that has now come to an end.
In the coming weeks, as the earnings reporting season for the first three months of 2012 begins, analysts expect bank profits to be depressed by the effects of an economic slowdown, high interest rates and inflation.
Banks are expected to report that most of their retail and business customers were finding it difficult to service their loans and some have already stopped making payments. This will see the level of bad loans increase forcing banks to set aside extra reserves to cushion their capital against customer defaults.
“After close to eight straight years of strong sector (banking) performance we think the days of “party for all” have come to an end,” said Standard Investment Bank in a research report of the banking sector. (The East African)
With the ongoing debate on the Finance Bill in parliament, banks are going to have a difficult time. Legislators have proposed cap interest rates rates on loans at 22%, which is 4 per cent points more that the 18% rate set by industry regulator Central Bank of Kenya.
All this coupled with the results given to lenders by Credit information bureaus on the history of borrowers, will it be easy for Kenyans to access loans? Will banks afford to cut down their zeal to hawk loans to Kenyans like they have been doing in the recent past?
A newly published report by Financial Services Deepening (FSD Kenya) – a non-profit organisation that monitors the financial services industry – says the build-up of consumer information had resulted in the listing of 203,518 individuals and 9,954 businesses as bad debtors by April last year. This lot will not be able to access loans from banks for at least seven years.