Assessment of the Effects of Loan Concentration on Credit Portfolio in Financial Institutions in Kenya
Generally speaking, there are many financial institutions that closed down in Kenya due to inactive loans. All the no-performing loans have been given proper actions by the bank managers to give remedies to the financial situations in Kenya. This study found out that the national economic crisis is one of the factors of the downturn among the financial institutions in Kenya. There are many bank clients who have not been able to give sufficient information regarding their financial assets and payment capacities during the loan application period. And many banks and financial institutions are not that determine and aggressive to collect payments from the bank borrowers. During the past years, it is a world wide phenomenon that global crisis brought to the entire world. And, there are different financial distress and bankruptcy that many countries experienced; they just varied on the level of severity. Kenya has experienced serious bank problems because there are Shs 80 billion or 30 percent loans or advances which until now have not been paid by the various bank borrowers. Moreover, Kenya has the highest unpaid advances or loans among other countries such as Japan, Taiwan, Philippines, Zimbabwe, and South Africa.
(http://www.globip.com/pdf_pages/african-vol4-article2.pdf)
This essay will reveal the causes of the non-performing loans or NPL in many financial institutions in Kenya. As well as the proper actions that have been taken by the bank managers about. In this connection, Central Bank of Kenya (CBK) stated that there was a 4.5 percent fall down in the pre-tax profit for the banking industry for the past years. Since, there are many unpaid loans that are not being paid by various creditors. And, controlling and close monitoring of delinquent borrowers should be closely monitored by the bank personnel in order to take decisive actions against the matter. However, the level of non-performing Loans (NPLs) is very high. According to the record of Central Bank of Kenya, since July 1999, there has been a Shs 80 billion or 30 percent advances or loans in different financial institutions in Kenya that are not being paid. Subsequently, it rose from 27 percent in 1998 up to 33.4 percent of total unpaid loans in November 2001 which is equivalent to 81.3 billion. Nevertheless, Kenya has been experienced banking problems since 1986 then it continually happened at the present time. The bank financial failures were mainly attributed to non performing loans, which was placed under the poor management of credit portfolios. At the same time, due to other external factors that is inevitable by the creditors such as the bad weather, increase of pricing on basic commodities that made the ordinary loan borrowers having difficulties to keep their loans paid on time. Until such time, that the loans started to accumulate extra charges and accrued interests that only added to the creditors’ burden on how they are going to pay their existing bank loans. In addition to that, the World Bank described Kenya to have a very weak banking industry. Most of the financial institutions in Kenya do not have a solid implementation and financial strategies on how to cope up during times like this.
(http://www.globip.com/pdf_pages/african-vol4-article2.pdf)
Moreover, according to the Central Bank of Kenya Supervision Report (CBK), the level of unpaid loans has been remarkably increasing as the years go by. The arrears greatly affect more than half of the loan amount of the borrowers. That is the reason that there are a lot of bad debts in the country. Plus the fact that most of the Kenyan Financial institutions are carrying out a high interest rates on their bank loan portfolios. Aside from that factor, another reason why many banks in Kenya today collapsed is because there are many insider loans made by the borrowers who have still existing loans with the banks. And, the worst thing is most of the larger banks in Kenya have fallen down such as Continental Bank, Trade Bank and Pan African Bank which tremendously allowed insider lending. The insider lending privilege is mostly given to African political figures or any individual who got high ranked position in the government. Relatively, all the inside lending transactions are for real state development projects, breached large-loan exposure limits up to the government projects which do not generate return of investment in a short span of time. All these actions are significantly attributed to political pressure, under capitalization and over concentration in ownership. With all these in mind, it is very obvious that the unfavorable national economic condition is perceived as the main significant factor in the leading depression of business in Kenya, most particularly in banking industry.
(http://www.cma.or.ke/index.php?option=com_docman&task=doc_download&gid=85)
References:
(http://www.globip.com/pdf_pages/african-vol4-article2.pdf)
(http://www.cma.or.ke/index.php?option=com_docman&task=doc_download&gid=85)
Credit:ivythesis.typepad.com
0 comments:
Post a Comment