The Central Bank of Kenya has warned that commercial banks in South Sudan are likely to record a rise in loan defaults. The banks have kept operations open in parts of South Sudan in spite of the ongoing violence.
In an industry report released last week, the central bank reported that Kenya commercial banks were likely to see a rise in non-performing loans in the first quarter of this year, driven in part by instability in South Sudan.
Citing credit officers at the commercial banks, the Kenyan Central Bank also warned that the crisis in South Sudan was likely to negatively impact not only banks themselves but also Kenyan companies that export to South Sudan, including firms in the energy, water, transport and communications sectors.
Many institutional and business borrowers in South Sudan may be unable to repay owing to the shock of the latest violence on economic activity in the country.
The independent Daily Nation newspaper based in Nairobi reported today that Kenya Commercial Bank (KCB) has a global non-performing loan ratio of 8.4 per cent. Analysts at the company attributed the high rate in part to poor quality credit at branches in South Sudan.
“There are concerns that the government will not pay contractors in time given its military engagements,” said a credit officer with a bank with operations in South Sudan, as quoted by Daily Nation.
Business Daily, meanwhile, reported that the company Davchem East Africa had run into trouble with their Sh 170 million contract with Japan International Co-operation Agency (JICA) to supply water to Malakal town.
A company official said he was seeking debt restructuring with his banker, a mid-tier lender in Nairobi, as he pursued payments from the Japanese agency.
Traders such as Patrick Kinyua and Ruth Wanjiru who ran away from South Sudan after the chaos broke out said that the government owed them money having been contracted to do landscape and cleaning works at state offices.
At least four Kenyan banks have operations in South Sudan, while others lend directly to businesses in the neighbouring country from their Nairobi headquarters.
Kenya Commercial Bank had 21 branches in South Sudan before the conflict, but at least three were forced to close or were looted during fighting since December. Other Kenyan lenders with operations in South Sudan are Equity with nine branches, Co-operative and CFC Stanbic each with a branch in Juba.
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Banks to reopen in South Sudan capital in wake of clashes (18 Dec.)