Ukur Yatani, cabinet secretary of the Kenyan National Treasury, on the state of the country’s economy and banking sector.

Kenya faced several economic challenges in 2020; however, the country’s latest lockdown measures are likely to be short-lived and strong economic growth will resume soon, according to Ukur Yatani, cabinet secretary of the Kenyan National Treasury (effectively the country’s finance minister).

Although the economy expanded by 5.4% in 2019, growth nosedived to just 0.6% in 2020 owing to the Covid-19 pandemic. It was forecast to expand by 7% in 2021, according to official National Treasury figures. But on March 26, Kenya’s president Uhuru Kenyatta put the capital, Nairobi, and its surrounding four counties back under lockdown restrictions because of the region’s high infection rate.

“It is clear that 2020 was a challenging year, both globally and on a domestic level,” Mr Yatani says. “The outbreak and spread of the Covid-19 pandemic, and later the containment measures, have devastated economies globally. In Kenya, the pandemic has disrupted our carefully laid development plans in many ways. We were on a clear, predictable growth path, which has now been disrupted to a great extent. As well as the pandemic, we suffered a further challenge in the locust swarm that invaded the greater part of northern Kenya last year.”

Challenging times

In light of this, the country made several significant adjustments and has since seen an improvement in the general state of the economy. “Looking at last year’s second quarter, the economy contracted by 5.5% — which is quite massive — and then contracted by 1.1% in the third quarter; but, overall, the economy grew last year [by 1.2%, according to Fitch]. Our projection of 7% growth this year is mainly due to the lower base rate, but also because of the opening up of a number of economic activities,” he explains. The agricultural sector, for example, which contributes almost a third of Kenya’s gross domestic product, is faring well because of receiving above-average rainfall over the past two years.

I do not think the NPL ratio will go up any higher. I believe the worst times are behind us now

Ukur Yatani, Kenyan National Treasury

“During the next few years, we are looking at economic growth of 6.1%, which will be supported by a stable macroeconomic environment and a number of ongoing investments in strategic priorities — for example in universal health coverage, manufacturing and food security,” Mr Yatani continues. 

He also notes that the country’s high interest payments on the debt-to-tax revenue ratio (around 32%) is one of the reasons the government joined an International Monetary Fund programme. The suggested economic reform measures are revenue-driven and take into account debt vulnerabilities, he adds.

NPL concerns

The banking system remained quite stable and resilient last year, and has strong liquidity and capital adequacy ratios, according to Mr Yatani.

“The sector keeps on supporting the economy, particularly during this challenging time of the Covid-19 pandemic. Banks have continued to provide financial services and support borrowers,” he says.

“Of course, with the challenge of the pandemic, the banking sector has also experienced its fair share of the strain, specifically increasing operating environment pressures. There has also been weakening asset quality and profitability metrics.”

Mr Yatani reports an increase in loan defaults, leading to a rise in non-performing loans (NPLs), mainly in the real estate, agricultural, personal and household, and manufacturing sectors. The NPL ratio stands at 14.5% as of February 2021. “It is not drastic, but gradually we have seen a difference,” he adds.

The higher level of NPLs can be attributed to the subdued business environment, Mr Yatani believes, but notes that the country has seen signs of improvement over the past few months.

“We are now seeing recovery in terms of business activity, which undoubtedly will improve further,” he says. “I do not think the NPL ratio will go up any higher. I believe the worst times are behind us now because, as Kenyans, we have in-built coping mechanisms. To some extent it depends on how long the current containment measures last, but [as a Treasury official] I know the trajectory of these measures. The current round could be quite short-lived to some extent, as we must have a delicate balance between the health needs of the people and their economic needs.”

While the Kenyan banks have proved their resiliency in a difficult environment, it did take time for them to make the necessary adjustments to the multiple shocks of 2020. They are now in a better position to sustain their business activities and have come up with many innovative ways to do so, Mr Yatani claims. Importantly, they have made it possible for people to transact and work from home, allowing economic activity to continue in spite of the pandemic.


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