A report by the Central Bank of Kenya (CBK) reveals an increase in Non-Performing Loans (NLP) in 2023.
CBK, in the Bank Supervision Annual Report 2023, revealed that mortgage loan defaults hit a record high of Ksh40 billion.
This was an increase of Ksh3 billion from the loan defaults recorded in 2022.
"The outstanding value of non-performing mortgage loans increased from Ksh37.8 billion in December 2023, to Ksh40.8 billion in December 2023. The non-performing mortgage loans to gross mortgage loans ratio was 14.4 per cent in December 2023, as compared to 11.4 per cent in December 2022," read the report in part.
"The ratios were below the industry gross NPLs to gross loans ratio of 15.6 per cent in December 2023, and 13.8 per cent in December 2022."
Meanwhile, loan defaults for credit offered by banks and financial institutions for personal and household use stood at Ksh92 billion.
"The concentration of non-performing loans was mainly in Trade, Manufacturing, Real Estate, and Personal and Household sectors in December 2023.
"CBK will closely monitor the four economic sectors to ensure that commercial banks make adequate provisions for the loans in the four economic sectors to mitigate the risk of default," read the report in part.
According to the report, the increase in loan defaults was occasioned by the tough economic times that have hit businesses in the country.
On the other hand, late payments for employees, businesses and suppliers also made it difficult for individuals to meet their loan obligations.
Consequence on NPLs
With the increase in loan defaults, banks and financial institutions are expected to intensify loan recoveries. Should the plans by the banks materialise, many Kenyans will lose their assets including homes and land.
"Respondents indicated that the level of NPLs is expected to remain constant in eight economic sectors, increase in the personal and household, and trade sectors, and a decrease in the transport and communications sector during the next quarter.
"For the quarter that ended June 30, 2024, banks expect to intensify their credit recovery efforts in eight economic sectors and retain them in three sectors. The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio," read a report by CBK in March.
Other effects of non-performing loans include the increase in interest rates and the limit of lending options for Kenyans with outstanding loans.
