Loan defaults hit Sh403 billion as CRB listing starts

Workers and businesses have defaulted on loans worth Sh53.95 billion since the onset of coronavirus restrictions in March, paving the way for blacklisting of thousands of borrowers with credit reference bureaus (CRBs) from January.

Data from the Central Bank of Kenya (CBK) shows that non-performing loans (NPLs) rose to Sh403.9 billion in October, up from Sh349.9 billion at the end February — the sharpest eighth-month increase in recent history.

“NPL increases were noted in the transport and communication, energy and water, tourism, restaurants and hotels and real estate sectors, mainly due to disruptions of the businesses,” said CBK Governor Patrick Njoroge.

“The increases in NPLs were partially offset by repayments and recoveries in the trade, manufacturing, building and construction sectors.”

This came after the expiry of the six-month freeze for listing loans defaulted during the Covid-19 era with the three CRBs, ushering in a busy season for the bureaus.

But the defaulters look set to appear in the books of Kenya’s three CRBs — Metropol, TransUnion and Creditinfo International—from January after the expiry of the 90-day notice.

The CBK announced the suspension of CRB listing for loans that were defaulted after April 1, and the relief was to last for six months to September 30.

The NPL growth emerged when Kenyans deferred payments of 46.5 percent of the bankers’ total loans or Sh1.38 trillion, a pointer that defaults — which is credit that remains unpaid for more than 90 days — could have been worse without the credit rescheduling.

The ratio of NPLs rose from 12.7 percent in February to 13.6 percent — the highest since August 2007 when it stood at 14.41 percent.

Industries and other businesses have since cut down on their activities in response to the infectious disease, leading to job cuts and unpaid leave for retained staff as profitable firms move into losses.

The rise in defaulted credit looks set to trigger a jump in property auction as banks move faster to seize assets from defaulters in a year when a majority of top lenders are expected to issue profit warning on costs linked to bad loans.

Industries and other businesses have since cut down on their activities in response to the infectious disease, leading to job cuts and unpaid leave for retained staff as profitable firms move into losses.

About 1.72 million workers lost jobs in three months to June when Kenya imposed coronavirus-induced lockdown that led to layoffs and pay cuts.

This has seen workers who had tapped mortgages and unsecured loans for purchase of goods such as furniture and cars and expenses like school fees default. Unsecured loans are given on the strength of one’s salary.

The Kenya National Bureau of Statistics (KNBS) is yet to release the jobs report for the quarter to September.

Firms that had borrowed based on the forecast of cash flows have also been struggling to repay their bank loans.

More than 3.2 million Kenyans were listed as loan defaulters with the CRBs before the outbreak in an economy where job cuts and near-stagnant wages have left thousands of people in a debt trap.

Data from the CRBs show that the accounts negatively listed have jumped from 2.7 million last year, most of them linked to mobile digital borrowers.

The default rates have jumped in the wake of the coronavirus outbreak. This could increase the number of defaulters reported to the three CRBs.

The CRB listing relief was part of a stimulus package announced on March 25 to cushion distressed businesses and households from the effects of the pandemic.

The Treasury last week downgraded Kenya’s growth forecast for the year to 0.6 percent amid the economic fallout from the Covid-19 pandemic — making it the lowest expansion in 12 years.