Households and personal account borrowing dropped by Sh42.43 billion last year from Sh584.55 billion in 2016, according to latest Central Bank of Kenya data.
This shows a shift and tightening of lending conditions by banks to borrowers viewed as high risk - mainly individuals and small enterprises - following the introduction of the rate cap law.
The National Treasury plans to amend the law which currently caps the interest charged by banks a four percent above the prevailing CBK rate which currently stands at 10 percent. This is expected to bring fairness in the market by providing credit access to risky borrowers.
Nonetheless, the CBK annual Banking Supervision Report, shows individuals still accounted for the lion’s share of banks' private sector lending at Sh542.12 billion in 2017. This was 25.11 per cent of the total gross loans during the review period.
Banks lost about 519,000 loan accounts in the personal/household sector, 74.14 per cent of the total accounts lost in 2017. Gross non-performing loans increased to Sh43.1 billion last year compared to Sh37.17 billion in 2016.
The Kenya Integrated Household Budget Survey 2015/2016 launched in March showed at least 39 per cent of household credit goes into purchasing basic needs including food, toiletries and water followed by school fees at 21 per cent. Only 16 per cent goes into business investment.
CBK data collected from all lenders shows that credit to the private sector declined by Sh135 billion in 2017 to Sh2.16 trillion whereas banks’ investment in government securities increased by Sh132.41 billion during the period as lenders sought to bridge the revenue gap.
The trade sector accounted for the highest value of non-performing loans at Sh78.34 billion while year-to-year lending to the sector decreased by Sh22.72 billion from Sh438.86 billion in 2016.
Manufacturing sector received Sh5.94 billion more in loans to hit Sh272.74 billion while bad loans within the sector grew 56.28 per cent to Sh39.54 billion.
“Trade, personal/household, and manufacturing and real estate sectors accounted for the highest value of non-performing loans by registering 75.07 per cent," the report stated.
This was mainly due to delayed remittances by employers, slow uptake of housing units and delayed payments from public and private sectors.
Total gross non-performing loans in the private sector grew by Sh50.25 billion to Sh264.62 billion during the review period.