Property, matatu owners top Covid-related loan defaulters

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Homeowners, landlords and vehicle owners topped the list of loan defaulters in the first three months last year.
CBK data shows that loans secured on strength of title deeds and logbooks posted the largest increment in absolute numbers in the quarter through September.

Homeowners, landlords and vehicle owners topped the list of loan defaulters in the first three months last year after public health authorities eased some of the stringent Covid-19 restrictions, prompting banks to raise provisions for bad loans.

Central Bank of Kenya (CBK) data shows that loans secured on strength of title deeds and logbooks posted the largest increment in absolute numbers in the quarter through September, accounting for nearly 60 per cent of new bad loans in the period.

Transport and communications as well as real estate sectors accounted for 58.67 per cent of the Sh19.6 billion additional non-performing loans (NPL), pointing to persistent Covid-related struggle in the two key sectors.

This pushed the banking industry’s problem loans to Sh399.7 billion in September from Sh380.1 billion in June, adding to the loan provisions burden for banks and consequently eating into their earnings.

Restrictions in movement and social-distancing rules to curb the spread of life-threatening Covid -19 hit the public transportation hard, cutting earnings for taxi and matatu (commuter public service vehicles) owners and jolting their loan repayment plans.

Partial shutdowns and restrictions such as night curfew resulted in some businesses scaling down operations and shedding workers, further distressing real estate developers who have for years been battling dipping growth in sales and rental prices in a softening economy.

“The real estate sector was struggling even before the pandemic and when it hit, it made such things as the purchasing power and disposable income of people in the sector worse,” Bernard Kiarie, the managing partner at Algum Africa Capital LLP said in a past interview.

“It was one of the sector that needed (Covid relief) support.”

The CBK data shows NPLs among borrowers in transport and communications sector climbed 30.33 percent (or Sh6.4 billion) to Sh27.7 billion in three months ended September 2020, while defaults on real estate investment loans such as mortgages rose 9.70 percent (or Sh5.1 billion) to Sh57.7 billion.