Car and home owners record worst loan defaults of the year

By CHARLES MWANIKI
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Summary

• New data from the Central Bank of Kenya (CBK) shows that the real estate sector recorded a jump of 13.3 billion shillings or 14.1% of non-performing loans (NPLs) during the period to 74.7 billion of shillings.
• It’s a clue that workers who manage mortgages from their paychecks and businesses have yet to recoup lost income as a result of the economic hardships of Covid-19.
• Bad debts in the transport sector, which has been affected by Covid-19 restrictions including curfews and cross-border closures, increased by 10.8% or 4.1 billion shillings to reach 42, 2 billion shillings.

Car owners, landlords and energy sector players suffered the worst defaults last year, defying a recovering economy that has grown at the fastest pace in more than three decades.

New data from the Central Bank of Kenya (CBK) shows that the real estate sector recorded a jump of 13.3 billion shillings or 14.1% of non-performing loans (NPLs) during the period to 74.7 billion of shillings.

It’s a clue that workers who manage mortgages from their paychecks and businesses have yet to recoup lost income as a result of the economic hardships of Covid-19.

Bad debts in the transport sector, which has been affected by Covid-19 restrictions including curfews and cross-border closures, increased by 10.8% or 4.1 billion shillings to reach 42, 2 billion shillings.

It gives insight into the nightmare transportation and real estate have become for banks amid the Covid-19 pandemic.

The data showed that the two sectors saw the largest increases in defaults and explains why several banks exposed to real estate and transportation have turned to auctioning properties and vehicles.

The stock of bad debts in the energy and water sector increased by 17.1% or 2.2 billion shillings to reach 15.1 billion shillings, while failed loans in the transport sector and communications increased by 10.8% or 4.1 billion shillings to reach 42.2 billion shillings.

The CBK said low utilization of completed projects was preventing developers from repaying loans, while transporters were struggling with limited demand due to Covid-19 prevention restrictions which were only fully lifted in October.

“The real estate, energy and water sectors saw the largest increases in NPLs, mainly due to low utilization of completed contracts,” the CBK said in the quarterly review.

Lenders therefore turned to auctions to get their money back and reduce their exposure to bad debts which stood at 13.1% of the total loan portfolio at the end of the year.

Foreclosures were most pronounced in the real estate sector, as well as assets such as motor vehicles and capital goods that were financed with debt.

Overall, the stock of bad debts increased by 2.7 trillion shillings to 426.8 billion shillings last year, with six of the 11 major economic sectors recording an increase in NPLs during the period.

Risk of easing

Those registering a decline are manufacturing, agriculture, individuals and households, financial services and trade.

According to the CBK, however, credit risk should continue to ease this year as more people and businesses get back on their feet after the Covid-19 hit.

Banks have indicated that they expect loan repayment rates to improve this year by reducing their provisioning for bad debts.

They had increased their coverage in 2020 as the economy contracted and borrowers struggled to repay loans due to job losses as businesses struggled to operate under government restrictions.

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