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Defaults on personal loans fall Sh2bn on CRBs return


Economy

Defaults on personal loans fall Sh2bn on CRBs return


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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • Non-performing loans (NPLs) among households, largely secured on strength of payslips, dropped to Sh71.5 billion in March 2021 from a peak of Sh73.5 billion last September following an eight-month job shedding streak.
  • Firms resorted to laying off workers, slashing salaries and adopting un-paid leave policies to cut operating costs in April last year after public health authorities announced an initial tighter trade shutdown and travel restrictions.

Defaults on personal loans fell Sh2 billion in six months after the suspension of listing with credit reference bureaus (CRBs) ended, partly signalling a slowdown in corporate layoffs from the last quarter of 2020.

Non-performing loans (NPLs) among households, largely secured on strength of payslips, dropped to Sh71.5 billion in March 2021 from a peak of Sh73.5 billion last September following an eight-month job shedding streak, latest Central Bank of Kenya statistics show.

Firms resorted to laying off workers, slashing salaries and adopting un-paid leave policies to cut operating costs in April last year after public health authorities announced an initial tighter trade shutdown and travel restrictions.

To cushion distressed borrowers, including households, from the economic knocks of the Covid-19 pandemic, the CBK suspended the listing of loans that were defaulted from April 1, 2020, with Kenya’s three CRBs for six months through September 30.

The CBK credit market data suggests bad loans among households jumped Sh21.2 billion, or 40.54 percent, between March and September 2020 to peak at Sh73.5 billion before falling in the three months that followed.

“The larger chunk [of personal loans] reflect the salary loans issued through the check-off system.

“The impact of Covid in terms of the salary loans particularly between March 2020 and December 2020 may not show much because of the moratorium and restructuring of loans,” Samuel Tiriongo, head of research at the Kenya Bankers Association, said.

Most of the spike in bad loans to households was recorded at the height of pandemic shutdowns and travel restrictions between April and June 2020 when NPLs jumped Sh17.3 billion to Sh69.6 billion.

The economy during that quarter sank into a trough, with the gross domestic product — a measure of economic output — contracting 5.7 percent, and more than 1.7 million workers losing jobs.

Findings of Stanbic Bank Kenya’s Purchasing Managers Index — a measure of month-on-month private sector activity including employment — suggested companies shed jobs between February and September 2020 before they started rehiring on lower pay as they raced to stay afloat amid Covid-19 knocks on sales.

Bad loans linked to households fell Sh4.1 billion in three months ended December 2020 to Sh69.4 billion, before rising Sh2.1 billion in the quarter through March 2021 to Sh71.5 billion.

“The longer I stay out of work, the more difficult it’s for me to service the loan,” NCBA Group’s chief economist Raphael Agung’ said in an earlier interview.

“I could have lost the job today, which counts as unemployment data, but my actual liquidity materialises three or five months out.”



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