Commercial banks in Kenya are forecasting an increase in non-performing loans (NPL) in the first quarter of this year following negative outcomes in various sectors of the East African nation's economy.
The institutions, a new survey revealed Friday, expect their NPLs to go up, particularly in transport and communication, energy and personal loans sectors.
NPLs in the transport and communication sector, according to the survey, would increase due to the current ban on night travel on public transporters.
"For the first quarter of 2014, the banking sector has forecast an increase in NPLs in the transport and communication sector. The expected increase is attributed to revised regulations on night travel for public service vehicles," said the study by Central Bank of Kenya (CBK).
Kenya banned public transport vehicles from travelling at night following an increase in road accidents that claimed over 3,000 lives in 2013.
The government effected the ban just before Christmas holiday when there was increased travel. Transport Cabinet Secretary Michael Kamau has observed that the ban has been effective in curbing road accidents.
However, public transport operators have decried the move, noting that it has killed their businesses and would lead to loss of jobs. Attempts to rescind the ban through the courts have so far failed.
Other businesses affected by the ban include hotels and restaurants. Similarly, NPLs in the personal loans sector would increase due to overspending during Christmas festivities.
"Non-performing loans in personal and household sector are expected to rise due to cyclical reduction of customers' disposable income as a result of increased expenditures during the December/January festivities," noted CBK.
Ongoing political dispute in South Sudan is also expected to hit Kenyan companies hard leading to reduction in loan repayments.
"The current instability in South Sudan was also cited as a likely cause for negative impact on the businesses especially in energy and water as well as in transport and communication sectors, which export and transport directly to South Sudan," said the banks.
East African nation's commercial banks experienced a rise in NPLs last year from 724 million U.S. dollars in 2012, to 948 million dollars.
"There was an upsurge in credit risk with gross non-performing loans increasing by 30.9 percent from 724 million dollars in December 2012 to 948 million dollars," said the survey that sampled 42 banks and one mortgage firm.
However, the banks noted demand for credit generally increased in all Kenya's 11 economic sectors. "Demand for credit generally increased in 2013. This was supported by the expansion in gross loans from 16 billion dollars in December 2012 to 18.8 billion dollars," said the banks.
The rise in credit is attributed to peaceful political transition in the East African nation last March and a stable macro-environment.
"At the beginning of 2013, the demand of credit was generally low due to the then prevailing political uncertainty, which generally had a negative impact on the business environment. However with the peaceful conclusion of the March 2013 elections, the industry experienced an upward growth in demand for credit," the survey noted.
The highest demand for credit was witnessed from the transport and communication, trade, manufacturing and agriculture sectors.
With the anticipated rise in NPLs, banks are expected to intensify credit recovery efforts. "The banks indicated intentions to marginally intensify credit standards to mitigate any possible default risk," said CBK.
Kenyan banks continued with their strong performance last year, posting remarkable profits. The banks unaudited pre-tax profits stood at 1.5 billion dollars last year, up from 1.3 billion dollars in 2012.