RECOVERY

Loan defaults ease further to 13.9% as business peaks

The strong rebound is expected to nullify the 0.3 per cent economic contraction over the last calendar year

In Summary
  • Lending to the private sector is at 7% 
  • A decline in nonperforming loans defies pundits who predicted even a worse 2021 after the rate of loan defaults hit roof last year.
Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Image: EZEKIEL AMING'A

The rate of bad loans in Kenya are on a decline as the economy recovers from the effects of the Covid-19 pandemic, according to latest data from the Central bank.

The rate of non-performing loans in the country eased further by 10 basis points in August to 13.9 compared to 14 per cent in June. 

Repayments and recoveries were noted in the hospitality and construction sector, some of the economic sub-sectors that were highly affected by the pandemic. 

''The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios,'' Central Bank of Kenya Governor Patrick Njoroge told a post-Monetary Policy Committee media briefing on Wednesday. 

The growing optimism in the business space saw banks increase lending to the businesses, with the private sector growth improving to seven per cent from 6.1 per cent indicating improved credit access by businesses.

Last year, the Covid pandemic took a huge toll on local lenders with the rate of non-performing rising from 12 per cent in 2019 and moving towards  15 per cent mid-last year. 

A decline in non-performing loans defies predictions that the numbers would rise  in 2021 after the rate of loan defaults increased last year.

International credit rating agents predicted a more than 15 per cent NPL rate last year and even a higher one this year.  

The strong rebound is expected to nullify the 0.3 per cent economic contraction over the last calendar year, the first such contraction for the economy in nearly three decades.

“Leading indicators for the economy point to a strong GDP recovery in 2021, mainly supported by robust performance of construction, manufacturing, education, real estate and transport and storage sectors.

The economy is expected to rebound in 2021, supported by the continued reopening of the services sectors, recovery in manufacturing, and stronger global demand,” said the CBK.

The private sector market perception survey by CBK’s Monetary Policy Committee (MPC) showed general optimism on economic prospects by businesses despite uncertainties over the pandemic, increased political activity and the impact of increased taxes.