The proportion of defaulted bank loans has hit a 13-year high, reflecting the cash flow burden on workers and businesses brought about by coronavirus disease hardships.
Data from the Central Bank of Kenya (CBK) shows that the ratio of non-performing loans (NPLs) rose from 12.5 percent to 13.1 percent - the highest since August 2007 when it stood at 14.41 percent.
Defaulted loans - which is credit that remains unpaid for more than 90 days - jumped by Sh11.1 billion to stand at Sh366.8 billion in April when restrictions imposed to limit the spread of Covid-19 hit the Kenyan economy hard.
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. This has seen workers who had tapped mortgages and unsecured loans for purchase of goods like furniture, cars and expenses like school fees default. Unsecured loans are given on the strength of one's salary.
Firms that had borrowed based on the forecast of cash flows have also been struggling to repay their bank loans.
"This was due to increased NPLs in the real estate, trade and manufacturing sectors following a further slowdown in economic activity in these sectors,” noted CBK governor Patrick Njoroge.
"Banks will have to work with customers, but there will be no mechanical way of arresting NPLs spike,” he said.
The April figure show that banks are losing an average of Sh131 for every Sh1,000 loaned in a period when lending rates have fallen to 15-year lows at 12.09 percent. They also came in a period when banks have restructured loans worth Sh273.1 billion, or 9.5 percent of industry total credit, to ease the pain for borrowers and to avoid a sharp increase in defaults.
The restructuring involved non-payment of loans for up to three months and extension of credit tenures, which translates to lowering of monthly repayments.
Banks had lent Sh2.8 trillion by the end of April.
The loan defaults coincide with the prevailing tough economic times facing households since the first case of Covid-19 was confirmed in Kenya on March 12.
Kenya, which has reported 2,767 positive cases, has suspended commercial flights in and out of the country, banned public gatherings and imposed a night curfew since March, which was on Saturday was reduced to seven hours from the initial 10 hours but extended for the next 30 days.
The current rise in NPLs points to the difficulties that businesses are facing to keep afloat in the Covid-19 period, which has also cut workers sending power - the lifeblood of the economy.
While warning of more sackings, the Ministry of Labour and Social Protection had told Parliament that 133,657 formal jobs had been lost by the end of April due to Covid-19.
President Uhuru Kenyatta had also warned during his Labour Day speech that more than half a million jobs would be lost in the next six months unless the virus is contained.
At the weekend, Dr Njoroge said sectors such as tourism, hospitality, horticulture and agriculture had been hit on the back of rising Covid-19 cases as well as floods and locusts. This presents a bleak outlook for debt repayments.
“Tourists arrivals have declined to nothing in April and hotel bookings have really fallen on the back of this. Agriculture will also be impacted by rains and transportation issues in the wake of containment measures,” said the CBK governor.
CBK has retained its economic growth estimate at 3.4 percent, but said it would revise this soon, warning that recovery in various sectors of the economy may not come this year.
“Hotel, accommodation and tourism will take longer to recover because it is unlikely tourists will come back quickly. We have looked at bookings and they have nothing in the next three to four months,” said Dr Njoroge.
The rising defaults will likely set the stage for property seizures as banks move quickly to auction securities in the race to recover their money.
CBK data shows that the repayment period for personal or household loans amounting to Sh102.5 billion or 13.1 percent of the banking sector personal/household gross loans, had been extended by the end of April.