The average rate of bad debt in Kenya has hit almost two decade high of 15 per cent, illustrating just how borrowers are struggling to repay loans.
The last time the country witnessed this kind of loan default was in 2005 when it hit almost 30 per cent.
This means, banks are likely to write off Sh750 billions in their possession, considering that bank deposits rose by Sh430 billion in the first six months of the year to exceed Sh5 trillion for the first time.
This was driven by five-year high-interest rates, according to the latest central bank report.
"The ratio of gross non-performing loans (NPLs) to gross loans stood at 15 per cent in August 2023 compared to 14.2 percent in August 2022,'' the Monetary Policy Committee said after its meeting today.
The Central Bank's top organ says increases in Non Performing Loans (NPLs) were noted in the manufacturing, mining and quarrying, real estate, and building and construction sectors.
The mounting defaults have prompted top banks such as Equity, KCB, Co-operative Bank of Kenya, Stanbic Bank and I&M Bank to set aside more money for loan loss provisioning despite the sector’s pre-tax profits rising by 13.6 per cent to Sh65.1 billion.
