The value of loans classified as lost, doubtful and substandard increased by 16.5 percent to Sh314.6 billion in 2018 from Sh270 billion a year earlier, highlighting the daily struggle of Kenyans navigating the tough economic times.

The value of loans classified as lost rose fastest by 45 percent from Sh42.3 billion in 2017 to Sh61.2 billion last year. Lost loans are debts which have generally remained unserviced for 360 days or more after due date.

“The increase in non-performing loans’ categories were occasioned by deteriorating asset quality as a result of delayed payments, enhanced reclassification and provisioning of loans and challenges in the business environment,” says the central bank in its annual banking sector supervisions report released on Friday.

Weak economic policies and a tough business environment are largely to blame for the high loan default rates in the country.

During the release of the 2019 Economic survey, the Kenya national bureau of statistics indicated that the economy created only 78,400 new formal jobs in 2018, the lowest since 2012 when the country created 75,000, underlining the fact that many Kenyans struggled to stay afloat.

In 2018, loans which are in accordance with the contractual terms and up to date on repayments, also referred to as normal loans, registered a one percent increase to close the year at Sh1.86 trillion from Sh1.86 trillion. These debts account for 75 percent of the sector’s loan book.

During the period under review, loans under watch (debts which are generally past due by 30 to 90 days) grew by 5 percent to Sh292.8 billion representing 12.35 percent of the total loan book.

“The central bank requires commercial banks to classify loans and advances based on their performance,” says CBK in the report.

Over the one year period, manufacturing sector reported the highest jump in non-performing loans rising by 31 percent to Sh51.7bn in 2018 compared to Sh39.5bn in 2017. 

Trade sector continued as the pack leader with its bad loans rising 4 percent to Sh81.6 bn. This accounted for 29.6 percent of total bad loans as at the end of December last year.

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