Car, home owners register worst loan defaults in year

Economy

Car, home owners register worst loan defaults in year


The Central Bank of Kenya building in Nairobi. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • New data from the Central Bank of Kenya (CBK) shows that the real estate sector recorded a Sh13.3 billion or 14.1 percent jump in non-performing loans (NPLs) in the period to Sh74.7billion.
  • This is a pointer that workers servicing mortgages from their paychecks and businesses are yet to recover lost incomes in the wake of Covid-19 economic hardships.
  • Bad loans in the transportation sector, which was affected by Covid-19 curbs including curfews and cross-border lockdowns, rose 10.8 percent or Sh4.1 billion to Sh42.2 billion.

Car, homeowners and players in the energy sector had the worst loans default last year, defying a recovering economy that expanded 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 Sh13.3 billion or 14.1 percent jump in non-performing loans (NPLs) in the period to Sh74.7billion.

This is a pointer that workers servicing mortgages from their paychecks and businesses are yet to recover lost incomes in the wake of Covid-19 economic hardships.

Bad loans in the transportation sector, which was affected by Covid-19 curbs including curfews and cross-border lockdowns, rose 10.8 percent or Sh4.1 billion to Sh42.2 billion.

This gives a peek into the nightmare that transport and real estate have become for banks amidst the Covid-19 pandemic.

The data showed that the two sectors recorded the highest jumps in defaults and explains why several banks with exposure to real estate and transport have turned to auctioning properties and vehicles.

The stock of NPLs in the energy and water sector rose by 17.1 percent or Sh2.2 billion to Sh15.1 billion, while dud loans in the transport and communications sector went up by 10.8 percent or Sh4.1 billion to Sh42.2 billion.

The CBK said that low uptake of completed projects left developers unable to service loans, while transporters grappled with limited demand due to Covid-19 prevention restrictions that were only fully lifted in October.

“Real estate, and energy and water sectors recorded the highest increases in NPLs mainly due to low uptake of completed contracts,” said the CBK in the quarterly review.

Lenders have thus turned to auctions to recover their money and reduce their bad loan exposure that stood at 13.1 percent of total loan book by the end of the year.

The seizures have been most pronounced in the property sector, as well as assets such as motor vehicles and capital equipment that have been financed using debt.

Overall, the stock of bad loans rose by Sh2.7 billion to Sh426.8 billion last year, with six out of the 11 major economic sectors recording a rise in NPLs in the period.

Easing risk

Those recording a fall were manufacturing, agriculture, personal and household, financial services and trade.

According to the CBK, however, credit risk is expected to continue easing this year as more people and businesses regain their footing after Covid-19 hit.

Banks have signaled they expect improved loan repayment rates this year by cutting their provisioning for bad loans.

They had increased their cover in 2020 as the economy contracted and borrowers struggled to service loans due to job losses as firms struggled to perform under the restrictions imposed by the government.

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