The Central Bank of Kenya (CBK) has raised concerns about a significant increase in loan defaults in 2023. Their recently released Bank Supervision Annual Report highlights a worrying trend, particularly in the mortgage sector.

Defaults on the Rise

The report reveals a record high of Ksh40 billion in defaulted mortgage loans, a Ksh3 billion jump from 2022. This translates to a non-performing mortgage loan ratio of 14.4% in December 2023, compared to 11.4% the previous year.

While concerning, it’s important to note that this remains lower than the overall industry average for non-performing loans (NPLs) across all loan types. The industry NPL ratio stood at 15.6% in December 2023, up from 13.8% in 2022.

Beyond Mortgages

Loan defaults weren’t limited to mortgages. Kenyans also struggled to repay personal and household loans, with a total default value reaching Ksh92 billion.

The report identifies a tough economic climate as a major factor behind the rise in defaults. Businesses across various sectors, including trade, manufacturing, and real estate, are facing financial strain.

Additionally, late payments from employers, businesses, and suppliers are making it difficult for individuals to meet their loan repayment obligations.

The Road Ahead

The CBK plans to closely monitor these four key economic sectors. They aim to ensure that commercial banks make adequate provisions for potential defaults, mitigating future risks.

This report serves as a warning sign for Kenya’s financial sector. The Central Bank’s proactive approach will be crucial in addressing these challenges and maintaining financial stability.