The number of defaulted loans is at a 13 year high, according to data from the Central Bank of Kenya. The ratio of Non-performing loans has risen from 12.5 percent to 13.1 percent, the highest since August 2007 when it stood at 14.41 percent.
The recent statistics show the cash flow burden that workers and businesses have gone through since the outbreak of the Coronavirus pandemic in March this year. Defaulted loans rose by Sh11.1 billion to stand at Sh366.8 billion in April when the government imposed restrictions to curb the spread of the Corona virus, affecting the economy.
Due to the restrictions, companies and businesses had to cut their working hours to abide by the curfew rules. Many business activities plummeted forcing companies to enforce pay cuts, lay-offs and unpaid leaves for the staff as they started to make losses. This means that employees who had taken loans for cars, school fees, furniture and other expenses, have defaulted as unsecured loans were given based on one’s salary.
“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.
According to the report, based on the April figures, Banks are losing Sh131 for every 1000 loaned during a period when the lending rates have fallen to 12.1 percent, a 15 year low. The banks have also restructured loans worth Sh273.1 billion, 9.5 percent of Industry total credit, in efforts to ease the pain for borrowers and avoid a spike in defaults.
The restructuring involved non-payment of loans for a period of up to 3 months and extension of credit tenures, translating to the lowering of monthly payments.
By the end of April, Banks had lent out Sh 2.8 trillion.
The current NPL rise is a projection of the tough times businesses are going through to stay afloat due to the Corona virus pandemic. Lack of finances has also affected sending power, a lifeline of the economy.
The Ministry of Labour and Social Protection said that 133,657 jobs had been lost by end of April due to the pandemic and warned of more lay-offs.
In his speech on Madaraka Day, President Uhuru Kenyatta said that Kenyans were at risk of losing up to half a million jobs unless the virus is contained.
Dr. Njoroge noted that the tourism sector, Horticulture, hospitality and Agriculture have been hardest hit by the pandemic, followed by floods and the locust invasion.
“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.
Citing a warning that the economic recovery in various sectors may not happen this year, CBK said it would revise its economic growth estimate currently retained at 3.4 percent.
“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 number of defaulted cases are setting a stage for property seizures as banks are in a rapid move to auction securities in efforts to recover their money.
By end of April, the repayment period for household or personal loans amounting to Sh102.5 billion or 13.1 percent of the banking sector personal/household gross loans had been extended.