Loan Default Rates Hit a Worrying Level in the Last 1 Year

Kenya’s Central Bank (CBK) is raising a red flag about a surge in loan defaults, particularly in the mortgage sector. Their annual bank supervision report reveals a troubling trend, with mortgage defaults reaching a record Ksh40 billion by December 2023. This translates to a significant jump from Ksh3 billion in 2022 and a non-performing mortgage loan ratio of 14.4%.

While concerning, the report acknowledges that mortgage defaults remain lower than the overall industry average for bad loans (NPLs) which currently sits at 15.6%. This figure is also up from 13.8% in 2022.

The strain isn’t limited to mortgages. Kenyans are struggling to repay personal and household loans as well, with defaults reaching a total of Ksh92 billion.

The CBK blames a tough economic climate for the rise in defaults. Businesses across various sectors, including trade, manufacturing, and real estate, are facing financial difficulties. This domino effect spills over to individuals, as delayed payments from employers and businesses make it harder for them to meet their loan obligations.

In response, the CBK plans to keep a close eye on these key sectors. They’ll also ensure that commercial banks set aside enough provisions to cover potential defaults, minimizing future risks.

This report serves as a stark warning for Kenya’s financial sector. The proactive measures taken by the Central Bank will be critical in addressing these challenges and maintaining overall financial stability.