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Banks step up recovery efforts as bad loans grow by Sh7bn in April
The rise in defaults follows five years of falling real wages, as pay hikes lag behind inflation, shrinking purchasing power and forcing Kenyans to cut spending.
The volume of non-performing loans (NPS) held by commercial banks rose by Sh7.2 billion in April even as banks took aggressive recovery measures, pointing to persistent tough economic times in the country.
The Central Bank of Kenya monthly report shows bad loans grew to a record Sh724.2 billion in April from Sh717 billion a month earlier.
The ratio of non-performing loans to the total loan book rose to 17.6 percent, driven by the increase in bad loans accompanied by shrinking of total loans issued.
Total loans issued reduced by Sh7.5 billion in April to Sh4.11 trillion as banks shied away from lending to the risky private sector.
“The ratio of gross NPLs to gross loans stood at 17.6 percent in April 2025 compared to 17.2 percent in February. Increases in NPLs were noted in trade, personal and household, tourism and hotels, and building and construction,” said the Central Bank of Kenya in its latest Monetary Policy Committee report.
“The increase in NPLs in the period was mainly due to a challenging business and operating environment,” said CBK.
Banks have become more aggressive in selling pledged collateral to recover their money with increased auctioneer actions advertised in public media.
Most of the auctions involve land and property, which is the main asset accepted by lenders owing to its immovability and ease of disposal.
Four of the top tier banks in the country were holding property worth Sh1.75 trillion as collateral as at end of December 2024.
The government has been a major contributor to the piling up of the bad loans due to delay in paying contractors especially in the construction sector.
Recent announcement that it will be paying pending bills following securitisation of part of the fuel levy is expected to lower the volume of non-performing loans.
Pending bills by the national government stood at Sh528 billion as at end of September 2024, of which Sh286 billion related to the construction industry. Pending bills by the county government were Sh194 billion.
Commercial banks have turned to lending to the government which is viewed as less risky compared to the private sector.
In April commercial bank credit to the National Treasury rose by Sh112.1 billion to Sh2.6 trillion fanning fears of the government crowding out the private sector.
Deposits held by commercial banks declined by Sh11.2 billion in the same month to Sh5.71 trillion indicating that some bank customers are moving in search of higher yields as deposit rates fell.
Average deposit rate was 8.9 percent in April, having dropped from 10.8 percent a year ago.
Profits from the sector grew marginally, by 2.3 percent, breaking a trend where it has remained flat since the beginning of the year. Banks' cumulative profit before tax in the four months to April was Sh98.2 billion up from Sh95.9 billion in the same period in 2024.
Commercial banks have until the end of this month to release their half year financial results.
