More Kenyan borrowers are defaulting on loans, signaling a looming mass collateral seizures
As of April 2022, loan defaults in Kenya had risen to a one-year-high, with the ratio of non-performing loans jumping to 14.1% according to the Central Bank of Kenya (CBK).
Disclosing this in a communique at the end of its just concluded monetary policy meeting, the CBK explained that the increase in non-performing loans was most pronounced in sectors such as construction, manufacturing, transportation and communication.
A copy of the communique, which was seen by Business Insider Africa, said in parts:
“The ratio of gross non-performing loans (NPLs) to gross loans stood at 14.1 percent in April 2022, compared to 14.0 percent in February. NPLs increases were noted in the building and construction, manufacturing, trade and transport and communication sectors. These increases were attributable to specific challenges in the respective businesses, and banks have continued to make provisions for the NPLs.”
In specific terms, the bad debt stock in Kenya stood at $4 billion (KSh473 billion) as of Q1 2022. Needless to stress the fact that this is bad news for many banks in the East African country, many of whom may now have to step up their loan recovery efforts through collateral seizures.
Investopedia defines non-performing loans as loans that the borrowers have defaulted to repay the principle amounts and interests over a 90-day due date. This is bad for banks because when loans are categorised as non-performing assets, the implication is that they are no longer yielding interest for the banks.
In the meantime, Kenya’s apex bank said commercial banks in the country have continued to make provisions for the non-performing loans. Also, despite the increase in NPLs, the country’s banking sector continues to show signs of stability and resilience, “with strong liquidity and capital adequacy ratios”.
Recall that the Central Bank of Kenya’s Monetary Policy Committee had on Monday raised interest rate to 7.50%, surprising analysts who expected MPC members to retain rate at 7%. The apex bank explained that the increase was to help curtail inflationary pressures in the country.
