Data from the Central Bank of Kenya shows that Kenya’s banking industry stagnated in the first three months of the year, signalling a slowdown following the collapse of three lenders.
“Contagion effects of these actions particularly on liquidity distribution in the banking sector are being contained through coordinated actions spearheaded by the Central Bank,” Dr Patrick Njoroge said.
Dr Patrick Njoroge told Parliament that customer savings with commercial banks stood at Sh2.6 trillion in March, a replica of what was recorded in December.
Three banks have been closed in the last nine months, raising concern over the health of the banking sector in the country.
The gross loans in March were Sh2.2 trillion compared to 2.299 trillion in December, with banking assets shrinking marginally to Sh3.6 trillion from Sh3.7 trillion over the same period.
In the first quarter of last year, banks mobilised Sh85 billion in deposits and disbursed loans worth Sh67.4 billion.
These figures reflect slacking confidence in the financial sector which could have the adverse effect of slowing down economic growth due to lack of credit to finance development.
The data indicates some people could have opted to look at other options outside of the banking sector such as saccos and treasuries to keep their cash.
Small lenders have suffered the heaviest blow from the collapse of Dubai Bank, Imperial and Chase Bank as depositors sought safety in large institutions perceived to be more stable.
Low deposit inflows have forced some of the small banks to stop lending to avoid slipping into a cash crunch.
A cash crunch would force a bank to seek liquidity at whatever price, exposing it to interest losses.
The level of bad loans in the banking sector has also hit a ten-year high at eight per cent of the total loan book, signalling more trouble for the lenders.
With a total loan book of Sh2.2 trillion, this means the bad loans are at Sh176 billion, up from Sh139.4 billion in December—a Sh36.6 billion increase in the first three months of the year.
A stagnant loan book results in an increase of the non-performing loans as a percentage.
Banks have in the past relied on booking of new credit advances to report high quality loan book.
But with World Bank having commended Central Bank for having put measures in place to cushion the economy from taking a very hard hit as a result of strains coming the banking sector and other economic quarters by implementing favourable qualities, it may be just a matter of time before it is able to build customer confidence in the banking sector one more time.
Then again, if saccos take proper advantage of this opportunity, then they could really give banks a run for their money. Given that Industrialisation Cabinet Secretary Adan Mohamed recently told the sacco leaders’ convention at Laico Regency Hotel that the move to launch a centralised financing facility would enable groups to boost their capital reserves which will be used for expansion, innovation and also assist in initiating programmes that enhance value for members’ investments.
Translating to banks could possibly losing on important loan business once the government establishes the fund where saccos can borrow money to meet their targets and obligations. Read more on Saccos benefiting from launch of centralised financing facility