(Ecofin Agency) - The aggregate value of restructured loans by commercial banks listed on the Nairobi Securities Exchange, Kenya's capital market, reached KSh1.4 trillion in local currency ($12.55 billion) by the end of October 2020, according to a report by the analysis firm Cytonn Investment. This represents 46.5% of the total outstanding loans granted by these financial companies during this period.

According to customers, the restructuring consisted of moratoriums granted over 3 to 12 months, both on the principal of the debt and on the interest to be repaid. Even though this initiative was supervised by the Central Bank, Kenyan banks seemed to have no choice but to come to the rescue of their clients to avoid numerous defaults. The decision led to the slight deterioration of the quality of the banks' assets.

Outstanding receivables from listed banks amounted to 12.4% of total loans granted, according to data collected from financial communications made during the 9 months ending September 30, 2020. This is the highest level in the last 10 years and is well above the average for the last five years of 8.5%.

Despite this negative effect on their balance sheets, the banks have saved their margins. The sector's overall net profit declined by 32.7% compared to the first 9 months of 2019 but remained positive overall.

In its outlook for the African banking sector in 2021, the U.S. rating agency Moody's believes that Kenyan banks will continue to face problems with debt, but have sufficient capital to cushion the shock. On the other hand, they are expected to remain profitable, while maintaining their capacity to absorb additional delinquent loans.

There has also been a series of consolidations, acquisitions, or mergers involving Kenyan banks during the third quarter of 2020. If these initiatives are finalized, this bodes well for higher business volumes and therefore higher revenues.

Idriss Linge