The value of bad loans has hit Sh366 billion according to the Central Bank of Kenya (CBK). This is a reflection of the cash flow burden on both workers and businesses that have been brought about by the coronavirus disease hardships.
From the data released by the Central Bank of Kenya, the ratio of non-performing loans (NPL) rose from 12.5% to 13.1%. This is the highest rise since August 2007 when non-performing loans stood at 14.1%.
Defaulted loans are those credits that remain unpaid for more than 90 days rose by Sh11.1billion and stood at Sh366.8 billion in April. This happened when restrictions to limit the spread of Covid-19 were imposed hit the Kenyan economy pretty hard.
Businesses and industries have so far cut down on their operations in response to the pandemic, leading to job cuts and unpaid leave for retained employees as firms move into losses. The move has seen employees who had taken mortgages and unsecured loans for various purchases default. The insecure loans are provided on the strength of an employee’s income.
“This was due to increased NPLs in real estate, trade, and manufacturing sectors following a further slowdown in economic activity in these sectors.
Banks will move to work with customers, but there will be no mechanical way of testing Npls spike,” CBK Governor Patrick Njoroge noted.
The April result shows that banks are losing an average of Sh131 for every Sh1000 borrowed at a time when lending rates have gone down to 15-year lows at 12.09%. The fall also came at a point when banks restructured their loans worth Sh273.1 which is equivalent to 9.5% of industry total credit, to ease the pain for borrowers as well as avoid a sharp increase in defaults.
The restructuring by the banks involved non-payment of loans for up to three months and extension of credit tenures which results in lower monthly repayments.
Commercial Banks had given out a total of Sh2.8 trillion by the end of April.
The loan defaults come at a point when the present tough economic times are affecting households since the first case of coronavirus was confirmed in Kenya.
The present rise in NPLs points to the difficulties businesses are enduring to keep afloat during the tough times of Covid-19, which has affected the workers sending power.
While warning for more payoffs, the Ministry of Labour and Social Protection warned the parliament that 133,657 formal jobs had been lost by the end of April due to the pandemic.
At the weekend, CBK Governor, Dr, Patrick Njoroge said various sectors such as agriculture, horticulture, hospitality, and tourism had been hit bad with the rising Covid-19 cases, locust as well as floods. This shows a bleak outlook for debt repayment.
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“Tourist arrivals have reduced to nothing in April and hotel bookings have fallen on the back of this. Agriculture will also be impacted by rains and transportation issues in the wake of containment measures,” CBK governor said.
CBK has emphasized that its economic growth estimate at 3.4% but said it would catch up soon, warning that economic recovery of some sectors may not come this year.
