Bank loan defaults increased by Sh30.6 billion to hit Sh514.4 billion in June, surging past the half-a-trillion mark for the very first time in Kenya.
The latest Central Bank of Kenya (CBK) data shows this is also one of the sharpest monthly increases in recent history. The defaults put a figure to the struggles of workers and businesses in an economy that is yet to fully recover from a coronavirus-induced slump, which triggered job cuts and shut businesses.
The share of non-performing loans also rose to a new high of 14.7 percent in June—a higher ratio than the 14.55 percent recorded in March 2021 when Kenya was battling Covid-19 economic hardships. Lenders say the most affected borrowers are in the construction sector, especially road contractors.
Other big defaulters are in the hospitality sector after lockdowns cut global tourism. Manufacturers are also defaulting on loans due to reduced demand for goods following high inflation driven by a jump in the price of essential items like cooking oil, food, fuel and soap that have squeezed household budgets and in turn shrank demand for goods and services.
The defaults are set to trigger painful auctions and repossession of assets, which will leave borrowers even worse off. It is important for policymakers to intervene and stop further rises in cost of loans even as they put in place credit guarantee schemes that cushion lenders in the event of such spikes in defaults.
Also, it is important for all economic actors to do their part to ensure the current electioneering season does not hurt the economy any further since it will lead to more defaults.
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