The annual sector report released by the Central Bank of Kenya (CBK) this week shows personal loan borrowers and traders defaulted on Sh121.4 billion debt in the year. FILE PHOTO
Small traders and personal loans borrowers account for more than half of industry’s non-performing debt
This indicates tough times for households hit by economic slowdown
Kenya’s economy has grown at an average of five per cent per annum in the past four years but the growth has been overshadowed by a steady fall in corporate profits
Borrowers of personal loans and small business owners contributed nearly half of the Sh264.6 billion stock of total bad debt held by banks last year, revealing tough times for households hit by economic slowdown.
The annual sector report released by the Central Bank of Kenya (CBK) this week shows personal loan borrowers and traders defaulted on Sh121.4 billion debt in the year, accounting for 45.89 per cent of the industry total.
The CBK data paints a picture of households and small traders who are taking loans that they are unable to service.
The report is also a reflection of businesses that are struggling to stay afloat and others whose operations have ground to a halt following failure by the national and county governments as well as the private sector customers to settle their dues.
Kenya’s economy has grown at an average of five per cent per annum in the past four years but the growth has been overshadowed by a steady fall in corporate profits, a stagnation in workers’ incomes and a series of employee retrenchments that have slowed down small businesses.
On Thursday, Stephen Kangethe, an auctioneer with Nairobi-based Dalali Traders, said the number of properties going under the hammer or businesses crippled by mounting debt has risen sharply.
“Things are getting worse and the auctions are more compared to last year,” said Mr Kang’ethe in an interview.
Lack of buyers
He added that the situation had been compounded by lack of buyers for property belonging to distressed borrowers being put up for sale by the auctioneers.
“The irony is there are no buyers even for the property being put up for auction. Things are bad. There is no money,” said Mr Kang’ethe.
A severe drought last year, coupled with slowdown in credit access as well as prolonged political uncertainty, condemned small businesses to losses and squeezed incomes for Kenyan households, rendering many unable to service their loan obligations.
The economy grew by 4.9 per cent in 2017, the slowest margin in five years amid prolonged electoral process and adverse weather.
That pace of growth fell far below the 5.9 per cent recorded in 2016.
The last time Kenya recorded growth below five per cent was in 2012, also an election year, when the economy expanded by 4.5 per cent.
The resulting pain for small businesses, households and manufacturers is captured by the mountain of bad loans.
Personal loans and traders debt defaults increased by Sh22 billion in the year from Sh99.4 billion in 2016.
Bad loans held by trading firms jumped 29.6 per cent last year to Sh78.3 billion, up from Sh62.2 billion in 2016.
Defaults belonging to households on the other hand jumped 16.2 per cent to Sh43.1 billion.
Manufacturers were not spared either as bad loans rose 14.94 per cent to Sh39.5 billion last year, with the real estate sector accounting for Sh37.8 billion of bad debts, a 14.2 per cent rise.
CBK Governor Patrick Njoroge earlier this year said firms operating in trade were big defaulters on the back of a difficult operating environment.
“A lot of these relate to delayed payment by government, both the national and county (levels) and we expect the numbers to look better as they get paid,” said Dr Njoroge.
Retrenchment
Last year firms retrenched thousands of workers, reducing the ability of those who lost their jobs to service their loans.
“Unfavourable weather conditions adversely impacted various sectors of the economy, hence affecting lending in the sectors,” says CBK.
“Prolonged electioneering brought a lot of uncertainties to the business environment.”
The Treasury’s delay in releasing devolved funds has often paralysed most county government operations, while also hitting hard small and medium enterprises (SMEs) that do business with the devolved units.
Most contractors have said in the recent past they have had difficulty servicing their loans, spreading the risk to the banks who have responded by auctioning the borrowers’ assets, including heavy-duty transportation vehicles.
KCB’s head of corporate and regulatory affairs, Judith Sidi Odhiambo, said earlier that most of the bank’s customers who encountered difficulties servicing their loans had blamed it on failure by county governments to pay contractors.
Low business volumes
“Low business volumes and difficulty in getting new contracts have led to a decline in business fortunes,” Ms Odhiambo said last September.
KCB said it was talking to the debtors and in some cases structured payment plans to ensure the debts are paid in good time.
“We also have several options such as administration or receiverships, negotiated settlements, sale of assets through private treaty and auctions,” she said.
