This archive report was first published on 8 June 2020.
The Central Bank of Kenya (CBK) has revealed that the value of bad loans in the country has hit a 13-year high, reaching Sh366.8 billion in April.
The proportion of defaulted bank loans has risen to 13.1 percent, the highest since August 2007 when it stood at 14.41 percent.
Defaulted loans, which remain unpaid for more than 90 days, jumped by Sh11.1 billion in April, largely due to the economic hardships caused by the coronavirus disease.
Industries and businesses have cut down on their activities in response to the pandemic, leading to job cuts and unpaid leave for retained staff.
As a result, workers who had tapped mortgages and unsecured loans for expenses like school fees have defaulted on their payments.
CBK governor Patrick Njoroge noted that the increased non-performing loans in the real estate, trade, and manufacturing sectors were due to a further slowdown in economic activity in these sectors.
"Banks will have to work with customers, but there will be no mechanical way of arresting NPLs spike," he said.
The April figure shows that banks are losing an average of Sh131 for every Sh1,000 loaned, with lending rates falling to 15-year lows at 12.09 percent.
Despite this, banks have restructured loans worth Sh273.1 billion to ease the pain for borrowers and avoid a sharp increase in defaults.
The restructuring involved non-payment of loans for up to three months and extension of credit tenures, which translates to lowering of monthly repayments.
The loan defaults coincide with the prevailing tough economic times facing households since the first case of Covid-19 was confirmed in Kenya on March 12.
Kenya has reported 2,767 positive cases and has suspended commercial flights, banned public gatherings, and imposed a night curfew since March.
The current rise in NPLs points to the difficulties that businesses are facing to keep afloat in the Covid-19 period, which has also cut workers' income - the lifeblood of the economy.
