Traders defaulted on loans totaling Sh100 billion last year, giving a peek into how Kenyans are still struggling to with Covid-19 pandemic effects despite the resumption of economic activities.
Broke traders rushed to open bank accounts to enable them take loans to cope with the tough economic times, characterised by businesses closures and massive job losses in 2020.
However, there are concerns over the high rate of loan defaults in trade, real estate, manufacturing and personal and households.
The Central Bank of Kenya (CBK) wants banks to sufficiently make provisions in case the borrowers are completely unable to repay the loans.
“The concentration of non-performing loans was mainly in trade, real estate, manufacturing and personal and household sectors in December 2021,” said CBK.
“CBK will closely monitor the four economic sectors to ensure that commercial banks make adequate provisions for the loans… to mitigate risk of default,” it said.
CBK’s quarterly economic review also shows the transport sector, which was affected by Covid-19 curbs including curfews and cross-border lockdowns, saw a 60 per cent jump in bad loans of Sh16.4 billion from a similar period in 2020.
This is after bad loans rose from Sh27.5 billion in September 2020 to Sh43.9 billion in 2021.
On their part, home owners’ defaults rose by 20 per cent or Sh11.5 billion, after the defaults increased from Sh57.7 billion to Sh69.2 billion, as workers servicing mortgages from their pay checks and businesses lost their incomes as a result of the 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 as default surged.
Taking a loan from a financial institution was one of the coping mechanisms that households devastated by the Covid-19 pandemic employed, according to a World Bank report.
The report found that close to 15 per cent of rural households took a loan from a financial institution, compared to just under 10 per cent from urban areas.
However, most of the households, most of whom have no access to formal banking services, employed different coping mechanisms including dipping on their savings, reducing food and non-food consumption, relying on credit purchases and borrowing from friends and family.
Others engaged in additional economic activities or side-hustles even as a few sold their assets.
