Kenya’s Central Bank (CBK) is sounding an alarm over a worrying increase in loan defaults, particularly in the mortgage sector. Their annual bank supervision report highlights a steep rise in mortgage defaults, which reached a record Ksh40 billion by December 2023. This marks a substantial increase from Ksh3 billion in 2022 and translates to a non-performing mortgage loan ratio of 14.4%.
While this surge in mortgage defaults is troubling, it’s important to note that it is still below the overall industry average for bad loans (NPLs), which currently stands at 15.6%, up from 13.8% in 2022.
The financial strain isn’t confined to the mortgage sector. Kenyans are also grappling with repaying personal and household loans, with defaults hitting a total of Ksh92 billion. The CBK attributes this rise in defaults to a challenging economic environment. Businesses across various sectors such as trade, manufacturing, and real estate are experiencing financial difficulties. This, in turn, affects individuals who face delayed payments from employers and businesses, making it harder for them to meet their loan obligations.
In light of these developments, the CBK plans to monitor these key sectors closely. They will also ensure that commercial banks allocate sufficient provisions to cover potential defaults, thereby minimizing future risks.
This report is a stark warning for Kenya’s financial sector. The proactive measures taken by the Central Bank will be crucial in addressing these challenges and maintaining overall financial stability.