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Banks see higher defaults on personal loan
Kenyan banks expect rising dud loans in the personal and household sectors, which contrasts sharply with the expected recovery in other major sectors of the economy.
Commercial banks are expecting higher personal loan defaults as consumers continue to feel the pinch of reduced disposable income and relatively higher interest rates.
Banks expect rising dud loans in the personal and household sectors, which contrasts sharply with the expected recovery in other major sectors of the economy in the first quarter of 2025.
Reduced disposable income due to higher payroll deductions has put a strain on households, with Kenyans resorting to various coping mechanisms, including moving to cheaper houses and taking their children to cheaper schools.
“On expected non-performing loans per sector during the next quarter, respondents indicated that the level of NPLs (non-performing loans) is expected to remain constant in ten economic sectors but increase in the personal and household sector during the quarter,” the Central Bank of Kenya (CBK) quarterly credit survey for the period ended December 31, 2024 indicates.
The expected increase in dud loans to individuals and households is set to buck the trend of falling NPLs in the broader economy.
For example, the ratio of gross NPLs to gross loans eased to 16.4 percent in December 2024, from a higher 16.5 percent in October and 16.7 percent in September.
However, the NPL ratio remains close to a two-decade high, driven mainly by high borrowing costs for individuals and companies.
However, NPLs declined in the manufacturing, trade, construction, real estate, energy and water sectors.
Credit flows to households have shown resilience amid the general decline in commercial bank lending, registering a growth rate of 4.7 percent to Sh570.5 billion from Sh544.7 billion in the 12 months to November 2024.
This compares with a 1.1 percent contraction in private sector credit growth over the same period.
The personal/household sector meanwhile accounted for 14.3 percent of the Sh657.7 billion NPLs as at June 2024, or Sh94.6 billion, placing it behind only trade, manufacturing and real estate as the sector with the highest loan defaults.
A survey released last week by Old Mutual Financial Services revealed the economic pressures being felt by individuals and households, and the coping mechanisms being adopted to deal with the strain.
Lifestyle adjustments included buying cheaper brands, cancelling insurance policies and reducing weekend spending.
The survey found that only 37 percent of Kenyans said they were financially secure and had enough money to pay for unplanned events.
However, the personal and household sectors increased their demand for credit for festive occasions late last year, despite concerns about their ability to service the facilities.
However, falling commercial bank lending rates in early 2025 are expected to provide some relief to borrowers burdened by costly monthly payments.
