A surge in loan defaults by real estate, trade, and agricultural businesses saw them default on Sh30.9 billion in the first quarter of the year. This hefty rise in non-performing loans comes amid a time of rising interest rates, according to the latest review by the Central Bank of Kenya.
Hefty Rise in NPLs
According to CBK, the sector that posted the highest rise is real estate, which added Sh15.4 billion to its gross NPLs to stand at Sh117.1 billion as of the end of March, from Sh101.7 billion in December. This was followed by trade and agriculture, with trade adding Sh8.3 billion and agriculture Sh7.2 billion in defaults.
Broader Impact Across Sectors
Other sectors had increased NPLs in the same period. Building and construction, personal and household, and energy and water sectors saw a Sh2.1 billion, Sh1.8 billion, and Sh0.7 billion increase in NPLs respectively.
Trends by Sector
The overall gross NPLs for the banking sector increased by Sh20 billion to Sh641.3 billion as of the end of March. The ratio also went up from 14.8 per cent to 15.7 per cent, with the CBK projecting that credit risk would continue in the short to medium term. This came as a reason for banks to reduce lending, leading to an Sh82.2 billion drop in net domestic credit towards the private sector.
Notable Drops
Interestingly, the manufacturing sector went against the trend to record a Sh8.5 billion decline in NPLs, mainly due to loan write-offs. Other sectors in which there were reductions in NPL stocks were transport and communication, tourism, restaurant and hotels, mining and quarrying, and financial services.
Conclusion:
Although some sectors reduced their NPLs, an increase in defaults has contributed to a cutback in lending by banks. The outlook of CBK indicates that credit risk and interest rate risk will remain high in the near future.
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