Majority of Kenyans Defaulted on Loans Over Higher Rates

Advantages of CIS mechanism for Kenyan borrower in Credit Market

The first half of 2024 has seen an increase in loan defaults in Kenya, driven by rising interest rates that have strained millions of Kenyans to meet their loan obligations.

The sharp rise in interest rates has stifled the demand for credit, with private sector credit growth plummeting to 4 percent by June 2024, down from 13.9 percent at the start of the year. This decline has been mirrored by a surge in non-performing loans (NPLs) across major banks.

KCB Group, one of Kenya’s largest lenders, reported a significant increase in gross non-performing loans, which grew to Ksh.212.1 billion from Ksh.182 billion earlier in the year.

The bank also raised its loan loss provisions by 19.7 percent to Ksh.12.2 billion in response to the deteriorating credit environment.

As a result, the NPL ratio climbed to 18.5 percent by the end of June, up from 17.4 percent, with KCB attributing the rise to credit downgrades in Kenya and the impact of foreign currency-denominated loans.

This even as KCB’s loan book expanded to Ksh.1.032 trillion from Ksh.964.8 billion, driving a 34.8 percent increase in net interest income to Ksh.61.33 billion.

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Similarly, Equity Group saw its defaulted loans increase to Ksh.119.9 billion. To mitigate the rising NPLs, Equity Group increased its loan loss provisions to Ksh.10.5 billion.

The bank’s customer loans declined by 3 percent to Ksh.791 billion, while Kenyan deposits dropped by 8 percent to Ksh.423 billion, both impacted by high interest rates.

In response to these conditions, Equity Group CEO James Mwangi urged customers to anticipate a reduction in interest rates, following the Central Bank of Kenya’s (CBK) recent adjustment of its benchmark rate from 13 percent to 12.75 percent.

I&M Group was not spared and saw a 65 percent increase in the interest paid on customer deposits, amounting to Ksh.12.03 billion. Its loan book grew by 5.3 percent, reaching Ksh. 284.1 billion by the end of June.

According to the CBK Banking Supervision Report, the overall deterioration in banks’ asset quality in 2024 was the highest in the past five years.

An additional Ksh.150 billion in bad loans was reported, pushing the total to Ksh.651.8 billion – a nearly 30 percent increase compared to the previous year. The gross non-performing loans for 2022 stood at Ksh.503.2 billion.

The NPLs were heavily concentrated in four key sectors: Trade, Manufacturing, Real Estate, and Personal and Household. These sectors accounted for 72.9 percent of the total loan defaults.

Traders were the most affected, with the volatile business environment – exacerbated by the high cost of procuring dollars – leading to defaults amounting to Ksh.137 billion, or 21 percent of all bad loans during the period.

The manufacturing sector followed closely, with Ksh.135.6 billion in defaults, accounting for 20.7 percent of the total.

The Personal and Household sector, comprising over 12 million loan accounts, reported defaults totaling Ksh.92 billion, making up 14.1 percent of the sector’s gross non-performing loans.

August 23, 2024

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Collins Ogutu

Nairobi based Digital Journalist, Corporate Communication Expert and Digital Marketer with a wealth of experience in multimedia. Accredited member of the Media Council of Kenya.