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Loan defaulters are set to face tougher consequences as banks intensify loan recovery efforts through the auctioning of properties, amid widespread economic hardship and falling household incomes.
According to a survey by the Central Bank of Kenya (CBK), most banks are ramping up their efforts to recover loans.
The loan defaults in Kenya have risen to Sh717.5 billion which is 17.4 percent of all loans, which CBK says is the highest default in recent years.
Assets often used as collateral including vehicles, houses and land are now being auctioned countrywide.
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In the survey, CBK revealed that banks are targeting eight key sectors with the recovery efforts, including personal and household loans which 84 percent of banks say they work harder to recover as Kenyans had borrowed Sh554.6 billion by February 2025.
The trade sector is another area of focus for recovery efforts with CBK survey indicating that 76 percent of banks are rolling sleeves to recover the loans. In this sector, traders hold Sh675 billion of loans.
Other significantly affected sectors include real estate, with 73 percent of banks planning to intensify recovery efforts. This is followed by building and construction at 68 percent, manufacturing and transport and communication at 66 percent each, tourism at 65 percent, and agriculture, where 55 percent of banks intend to ramp up recovery initiatives.
“The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio,” CBK said.
Non-performing loans (NPLs) increased by Sh44.9 billion in the first quarter of 2025, rising from Sh672.6 billion in December 2024 to Sh717.5 billion by the end of March. This surge in bad loans pushed the NPL ratio up from 16.4 percent to 17.4 percent, which signals a decline in the quality of banks’ assets.
Over the same period, the total loan portfolio of banks grew slightly by 0.6 percent, reaching Sh4.12 trillion from Sh4.09 trillion in December 2024. The minimal growth in lending indicates that banks are exercising greater caution due to increasing credit risks.
