Loan defaults up 26 percent to Sh634bn


The stock of bad loans held by Kenyan banks grew 26 percent or Sh129.8 billion in the one year to October 2023, revealing a limping economy and hurting banks’ profitability.

Data by the Central Bank of Kenya shows that non-performing loans increased to a record high of Sh634 billion at the end of October last year.

The mounting bad loans are eating into banks' profitability as they increase their loan-loss provisions to cover for defaults.

According to CBK the default rate increased to 15.3 percent at the end of October compared to 13.8 percent in the corresponding 2022 period.

The deteriorating asset quality points to an underperforming economy, which is struggling to generate enough income and jobs as also shown by the Purchasing Managers Index survey which showed contractions in the business environment for 10 out of 12 months last year.

Provisions for bad loans by lenders increased in the period with the nine listed tier-one lenders setting aside Sh55.57 billion to cover for defaults in the first three quarters of last year.

The rise in bad loans provisions represents a 48 percent growth from Sh37.55 billion set aside by banks over the same period a year earlier.

Profit before tax for banks in the 10 months dipped slightly to Sh199.6 billion from Sh204.7 billion booked in the same period in 2022, the dip in earnings comes amidst higher interest income pointing to loan-loss provisions eating banks' earnings.

Earlier disclosures by the CBK revealed three sectors (trade, manufacturing and real estate) accounted for 58 percent of total defaults in June, with the biggest driver for growth being manufacturing which grew its defaults by close to half.

According to the Credit Report Survey, 45 percent of lenders indicated they expect defaults to rise in the last quarter of 2023 and the early stages of the new year.

Bank chiefs pointed out households and trade as driving defaults sighting increased credit to these sectors. The lenders also indicated they would intensify recovery efforts to improve the overall quality of the asset portfolio.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.