Kenyans are struggling to repay loans, report shows

Report shows that stock of non-performing loans has risen to a 16-year high

In Summary
  • The report blamed the situation on high cost of fuel, pending bills and the new tax measures 
  • The report warned that going forward, inflation could remain high and even rise if further shocks occur.
Unemployed youths
Unemployed youths

Kenyan borrowers are struggling to meet their debt obligations, a report of the Parliamentary Budget Office shows.

The Quarterly Economic and Fiscal Update (July-September 2023) Report showed that lenders may face challenges in recovering money loaned out to Kenyans, which may impact their financial health.

“There may be a need to restructure the non-performing loans resulting in an additional burden on borrowers in revised interest rates,” the report said.

The report attributed the woes facing Kenyan borrowers to the high cost of borrowing due to the tightening of the monetary stance and the weak business environment occasioned by the depreciation of the shilling.

The report further blamed the situation on the high cost of fuel, pending bills and the new tax measures that have reduced household disposable incomes and purchasing power.

“Although credit to the private sector has remained stable, the rate of non-performing loans has risen sharply,” it said.

It added that the stock of non-performing loans has surged to a 16-year high of 15 per cent as of August 2023, up from 13.3 per cent in December 2022.

The report also noted that the Kenyan Shilling has depreciated against major global and regional currencies.

“The shilling has lost 23 per cent to the US Dollar, 38 per cent to the Sterling Pound, 33 per cent to the Euro, 21 per cent to the Uganda Shilling and 12 per cent to the Tanzania Shilling between September 2022 and September 2023,” the report shows.

It added that the pressure on the shilling is fuelled by sustained demand for imports, subdued recovery in capital inflows as foreign interest rates remain elevated, enhanced dollar demand, and persistent strengthening of the US dollar globally.

“Domestically, the cost of living remains a key concern as prices of food, fuel, energy and other inputs remain elevated amid the rising cost of debt service, tight fiscal space, foreign exchange liquidity challenges, depreciation of the shilling and constrained business environment,” the report said.

According to the National Treasury, the economy is poised to grow at 5.0 per cent in 2023, up from 4.8 per cent in 2022, majorly driven by favourable weather conditions, the performance of the service sector and the impact of the Bottom-up Economic Transformation Agenda policies.

“However, given the multiplicity of the downside risks, this growth projection may not be achieved,” the report said.

It further said fuel inflation has remained elevated due to increased prices locally due to the depreciation of the shilling.

“This has further been aggravated by the doubled VAT on fuel from 8 to 16 per cent in the Finance Act of 2023,” the report pointed out.

The report warned that going forward, inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and the Israel-Palestine conflict.

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