Kenyan banks are likely to record a rise in loan defaults by South Sudan businesses, the central bank has warned. At least four Kenyan banks have operations in South Sudan , while others lend directly to businesses in the neighbouring country from their Nairobi headquarters. The Central Bank of Kenya (CBK) has warned that the political crisis in South Sudan which started in mid-December has stalled economic activity which could impact on the borrowers' ability to repay. "The current instability in South Sudan was also cited as a likely cause for negative impact on the businesses especially in energy and water as well as in transport and communication sectors who export and transport directly to South Sudan ," said CBK in an industry report released last week arising from a survey on credit officers in commercial banks. CBK data shows Kenyan banks were holding a total of Sh80.6 billion bad loans as at December, up from Sh61.6 billion a year earlier. READ: Bad loans jump to Sh80bn over late pay to contractors The lenders said they expect non-performing loans to rise in the first quarter of this year, driven by instability in South Sudan and budgetary strains in households after the December festivities and January expenditures. Thousands of Kenyan businessmen had opened shop in the young nation of South Sudan hoping to capitalise on infrastructure development and selling fast moving consumer goods in the virgin market. Banks were eager to finance contracted companies. Small and medium-sized companies also opened operations in the new country to sell wares and serve the locals who were returning to rebuild their nation. The full measure of the conflict which started in December is expected be known by end of first quarter as loans are considered non-performing after three months without payment. "There are concerns that the government will not pay contractors in time given it military engagements," said a credit officer with a bank with operations in South Sudan . The impact of the war conflict and disagreements between South Sudan and its neighbour Sudan is already being felt by the Kenyan banks. KCB told analysts at Kestrel Capital that it's high non-performing loan ratio of 8.4 per cent was due to poor quality credit in some of its subsidiaries singling out South Sudan . KCB controls 42 per cent of the South Sudan banking market with 21 branches, three of which it was forced to close down due to fighting between government forces and rebels. Other Kenyan lenders with operations in South Sudan are Equity with nine branches, Co-operative and CFC Stanbic each with a branch in Juba . READ: How South Sudan is minting money for Kenyan banks Dave Njenga of Davchem East Africa had earlier told the Business Daily that his Sh170 million contract with Japan International Co-operation Agency (Jica) to supply water to Malakal town had stalled, cutting back his cash flow projections. 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. Kenyan businesses hopes in S. Sudan are pegged on the relative peace that has remained in the country's financial capital, Juba .
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