Non-performing loans in Kenya to hit 15% - Fitch

KBA had in May projected 65 per cent of borrowers to default on loans due to Covid-19 effect on economy

In Summary
  • The rating firm projects profitability to remain under pressure from rising loan impairment charges 
  • Borrowers defaulting on loan repayment reached a new decade high of 13.6 per cent in August
Customers queue inside a KCB branch in Nairobi. /FILE
Customers queue inside a KCB branch in Nairobi. /FILE

Kenyan banks' credit profiles face significant risk from the economic impact of the coronavirus pandemic, Fitch Ratings says in a new report.

''We forecast that the sector's non-performing loans (NPL) ratio will rise to about 15 per cent by end-2020, and even higher in 2021 when debt relief measures are phased out,’’ said the global credit rating firm.

According to Fitch, profitability will remain under pressure from rising loan impairment charges (LICs) and a moderate credit growth.


The firm has a Negative Outlook on Kenyan bank Issuer Default Ratings, all of which is 'B+'.

Kenyan banks entered 2020 with an already weak asset quality, reflecting persistently challenging economic conditions and sustained low loan growth.

The sector's NPL ratio was 12 per cent at end-2019 and will continue to climb given the disruption to businesses and households from the pandemic.

According to the report, the most vulnerable sectors trade (18 per cent of the sector's gross loans at end-2019), personal lending (17 per cent), real estate (16 per cent), manufacturing (15 per cent) and tourism (14 per cent).

It added that loan impairment charges are already eroding profitability and consumed an annualised 40 per cent of pre-impairment profits on average for the eight largest banks in 1H20, a substantial increase from 17.5 per cent the same period last year.

The levels of LICs in the first half varied significantly between banks, reflecting different loan book profiles, with some banks more exposed to riskier sectors, as well as different forward-looking macroeconomic assumptions under IFRS 9.

The latest data by the Central Bank of Kenya (CBK) shows the number of borrowers defaulting on loan repayment reached a new decade high of 13.6 per cent in August compared to 13.1 in June. 

This is the highest since 2007 when the default rate was  14.1 per cent. 


Kenya’s highest NPL was reported in November 2001 at 33.4 per cent while the lowest debt default rate in the country’s history is at 3.5 per cent reported in 2012.

Speaking at a post-Monetary Policy Committee (MPC) meeting on Wednesday, CBK governor Patrick Njoroge said the growth in Non Performing Loans was dominant in the real estate, personal, transport and communication sectors, due to a subdued business.

The Covid-19 debt relief measure announced by CBK on March 18 saw loans amounting to Sh1.12 trillion representing 38 per cent of the banking sector loan book of Sh2.9 trillion restructured by end of August. 

This was an increase compared to Sh844. 4 billion of total loans restructured in June, representing 29 per of the total loan book.

A survey by the Kenya Bankers of Kenya (KBA) in May dubbed 'Spillovers and Feedback Loops' estimated 65 per cent of the borrowers to default their loan repayments this year due to the effects of Covid-19. 

According to the banking sector lobby group, 67 percent of borrowers will seek a one-year extension on their loan obligations.

The projection was backed up by CBK data that showed seven leading banks had restructured 176 billion shillings worth of loans in April after getting requests on customers' requests.