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Transcript
The Star Thursday Date: 12.05.2016 Page 20 Article size: 84 cm2 ColumnCM: 18.66 AVE: 32853.33 The challenge of bad loans is likely to persist The current banking crisis exposes the vulnerability of the banks in the local market to varying degrees, In the past few years, we have witnessed fast growth in credit, fueled mostly by strong marketing by the This means by the time the NPLs materialise, the cumulative effect is large, and often out of control. The result is a rise in the level of NPL in the industry at best, and a banking crisis at the worst. The CBK bank supervision reports tell a banking industry, and optimism about similar story. Gross loans have grown by 63 per cent from Sh1,190 billion in 2011 the macroeconomic environment on to Sh1,941 billion in 2014. In the same the part of borrowers. Furthermore, the emphasis has been on the access to credit, with less regard to the cost of the period, gross nonperforming loans have credit. The growth in the nonperforming period of four years. In its 2015 Banking Sector report, Cytxnn loans NPL that is the crux of the current crisis highlights the importance of linking the macroeconomic conditions to the health of the banking industry. It also highlights the structural vulnerability in the financial industry to shocks, in particular losses in the loan books. In fact the main goal of macroeconomic stress tests, which have become more common post the global financial crisis in the more developed economies, is to assess resilience of each bank to such shocks. grown from Sh60 billion to Sh108 billion. This is an increase of 80 per cent in the Investments has reported an increase in the listed bank's loan loss provision by 85.4 per cent. This has implication for bank supervision and regulation. Regulation may need to take into account the role of both macrofactors and bank specific characteristics in determining the level of nonperforming loans. In particular, a stronger focus on macroprudential regulation is necessary through capital and liquidity buffers, and countercyclical provisioning to help in mitigating the Generally speaking, NPL ratio worsens as economic growth becomes lower and impact of macroeconomic risks. Also interest rates increase. Also, large banks equally important are macroeconomic and banks with higher efficiency lower stress tests on individual banks, to test resilience to macroeconomic shocks. expense ratios tend to have lower NPLs. Furthermore, high credit growth in Moreover, the persistence of high the past is a key indicator of higher NPLs interest rate regime is also a stronger in the future. According to research, indicator that NPLs are likely to be a NPLs are persistent and take time to continuing challenge in the banking respond to the macroeconomic cycle. industry, unless the market experiences higher growth rates. Ipsos Kenya Acorn House,97 James Gichuru Road Lavington Nairobi Kenya