Most borrowers were unable to service their bank loans in the first three months of the year due to high interest rates and tough economic times. Huge defaults on loans were recorded in mortgages, personal loans and credit to the manufacturing sector, pushing up net non-performing loans to Sh87.8 billion, government data shows.
Real estate developers were the hardest hit, with nearly half of the loans defaulted coming from the sector, highlighting cash-starved Kenyan buyers opted to take up fewer housing units than what was produced during the period.
“This is attributable to slow uptake of housing units,” said a quarterly report by the Central Bank of Kenya. Commercial lending rates dropped marginally to 17.79 per cent from 18.3 per cent in December on overdrafts, one-five years and over-five years credit.
Gross loans advanced by banks grew slightly from Sh2.16 trillion to Sh2.22 trillion, pushed by higher demand from trade and real estate sectors. The report shows up to Sh5.9 billion (42 per cent) of defaults were held by real estate customers with bank accounts between January and March.
Real estate was one of the major drivers of economic growth in 2015, with a growth rate of 6.2 per cent compared to 5.6 per cent in 2014, attributed to a sustained increase in demand for residential and non-residential structures in urban centres.
Uptake of new offices in Nairobi rose by a marginal three per cent in 2015 from 1.30 million square feet in 2014, according to Britam Asset Managers. The decline was mainly attributed to the exit of expatriates from the city on security concerns and budget cuts by multinationals in the oil sector.
Conversely, developers supplied 300,000 more square feet of new office space to the market in 2015 compared to 1.7 million square feet the previous year. Job losses and delays in salary payments occasioned by huge losses recorded in the corporate sector last year saw bad loans from personal accounts and household grow by 21.5 per cent to Sh5.7 billion.
Traders were not spared either with lower earnings, making it difficult for most manufacturers to pay their debts. Bad loans held by manufactures recorded Sh2.7 billion, a 15.5 per cent rise.
“Increase in NPLs in the manufacturing sector was due to slowdown in business, leading to failure to generate enough cash flows to meet all financial obligations,” said CBK. Notable decreases were, however, recorded in transport and communication, mining, quarrying and agriculture.