Interest income from customer loans is seen reducing from January next year when banks adopt new tougher standards of scrutinising borrowers, officials said.
The implementation of the International Financial Reporting Standard (IFRS) 9 from January 1, 2018 will come with stringent conditions on how banks account for non-performing loans which is expected to trim the size of their of loan books.
“They (new accounting standards) will affect to a certain extent the returns that banks get and so you (banks) will have to look very carefully at the sectors and segments that you are lending to,” Barclays Kenya #ticker:BBK chief executive Jeremy Awori said when he addressed a banking sector conference in Nairobi on Monday.
“It’s anticipated the impairment costs are going to rise. The level of that impact will vary depending on which segment you lend to and that will become clear in financial accounting reports because this becomes an additional hit on profit and loss statement for banks.”
The International Financial Reporting Standards (IFRS) 9 require lenders to provide for expected rather than incurred (which they already do under CBK’s prudential guidelines) credit loss using historical loan performance data in various sectors, a development likely to lock out riskier borrowers.
The lenders will, for example, have to set aside cash for expected loss for a year if a credit facility is in default after 30 days and for its lifetime if the default persists beyond 60 days. This will eat into their profit.
Equity Bank #ticker:EQTY, the second largest lender by market share, has already stopped unsecured personal and SMEs loans with “less quality collateral”.
Kenya Bankers Association chief executive Habil Olaka said implementation of IFRS will further slowdown growth in private sector credit which rose to 1.6 per cent in August from 1.4 per cent in July, but far from the over 17 per cent in December 2015.
