Banks’ profits jumped 41.7 percent in the five months to May on increased lending and lower costs tied to loan defaults, pointing to continued recovery from Covid-19 economic hardships.

Data from the Central Bank of Kenya (CBK) shows that the pre-tax earnings in the five months rose to Sh76.4 billion from Sh53.9 billion posted in a similar period last year—when Kenya imposed Covid-19 restrictions.

The jump came in a period when banks increased lending and cut the size of non-performing loans (NPLs) due to a rise in repayments and property auctions.

Slowed lending that followed reduced economic activity after Kenya’s first Covid-19 case in March and costs linked to mounting defaults or provisions cut lenders profits 29.5 percent last year.

But the easing of restrictions and rollout of Covid-19 vaccines has triggered a gradual recovery in the economy, prompting banks to boost lending amid repayment of defaulted loans—which reduced provisions.

“Leading indicators for the Kenyan economy point to a relatively strong GDP recovery in the first half of 2021, mainly supported by strong performance of construction, information and communication, education, and real estate sectors,” said CBK.

“The number of loan applications picked up in June, reflecting improved demand with increased economic activities.”

The January-May earnings surpassed the Sh74 billion that banks posted in the first seven months of last year and comes as a relief for the sector which last year returned the lowest profit in eight years.

Banks’ loans grew Sh82.2 billion in the five months to Sh3.081 trillion while bad debt fell from a peak of Sh442.2 billion in February to Sh436.6 billion in May.

The fall in NPLs extended to Sh418.3 billion last months, meaning the stock of bad loans has reduced by Sh25.9 billion in the last four months.

The proportion of NPLs to the sector’s loan book stood at 14 percent last month—the lowest in eight months. It was at 13.6 percent in October last year.

Bad debts had risen for nine consecutive months, adding Sh94.3 billion between February last year and February 2021.

CBK last week said manufacturing, agriculture, trade and real estate sectors have led in debt repayments and recoveries.