Kenyan banks see the risk trajectory as strengthening and have already begun clawing back some of the impairment losses they recognised in 2020. To a very large extent, the international financial reporting standard 9 (or famously referred to as IFRS 9) – the accounting wizardry on which banks recognise and measure the performance of their financial assets – took away prudence when it comes to risk judgements, by handing management of commercial banks a lot of discretion.
First, they stopped lending and instead resorted to piling liquidity elsewhere.
They are now buying more Treasury bills and bonds. At the close of the second quarter, the share of investment securities to total assets crossed 30%, which is a record high, while the share of loans and advances to customers, their core business, dropped to below 50%, from a high of 60% six years ago.
The net result of not lending, since
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