Contractors in the building and construction sector defaulted on more than a third of loans they took to undertake projects, underlining the impact of stalled government projects on banks.
Data from the Central Bank of Kenya shows Sh52.1 billion out of a Sh140 billion loan book for the sector was non-performing at the close of 2024.
This is an equivalent of 37.21 percent of the total loans advanced to the sector compared with 25.9 percent in 2023, making it the largest sectoral default rate in the credit market.
The sector has seen bad loans nearly double in three years, climbing from Sh28.4 billion in 2022 to Sh41.7 billion in the year that followed.
The sector, which has over the years thrived on increased public sector expenditure on mega infrastructure projects such as roads, has been hit hardest by slowdown in government spending on development.
The cash flow challenges have been compounded by piling pending bills owed to contractors, prompting construction firms to halt work on projects.
The headwinds have cut economic activities in the sector, with output contracting 0.7 percent in 2024 compared with a growth of 3.0 percent the year before. That marked one of the worst performances in more than a decade.
“Cement consumption declined from 9,195.8 thousand metric tonnes in 2023 to 8,537.0 thousand metric tonnes in 2024. Similarly, the volume of imported iron & steel decreased by 8.9 percent to stand at 1,101.1 thousand tonnes in 2024,” the Kenya National Bureau of Statistics (KNBS) wrote in the 2025 Economic Survey last week. “In addition, the number of residential housing units completed by the State Department for Housing declined from 3,357 units in 2023 to 1,655 units in 2024.”
President William Ruto’s administration has been slowing down on expenditure on development projects, hitting hardest building of roads, water, power plants, housing and electricity transmission lines.
For instance, expenditure on development projects amounted to Sh170.83 billion in the first nine months of the current financial year, the lowest outlay in the review period in 11 years.
Reduced public expenditure has deepened cash flow woes for contractors in the sector, resulting in some of them failing to honour their loan repayments.
KCB Group, the largest lender by assets value, revealed earlier in the year that the building and construction sector had the worst non-performing loan ratio in its books at 60.5 percent in 2024.
"We are interested in a solution that secures our funds. We believe that there's a need to resolve the obligations to the small contractors because those people lost everything and the impact of that money when paid will be massive,” KCB Group chief executive Paul Russo said in March.
“The resolution must set parameters that will be complied with and parameters that will resolve for the vast majority of small contractors."
The growing default has seen the lender seek to auction assets of contractors such as Nyoro Construction Company to recover its cash.
To ease the liquidity pain for the road sub-sector, the Ruto administration has through the Kenya Roads Board lined up bonds whose proceeds will be used to settle mounting pending bills and improve liquidity among contractors.
“This decline [in construction sector] is not primarily attributed to large-scale commercial projects…. [but also] the everyday investments by Kenyan households-individuals purchasing two or three bags of cement to improve their dwellings,” Antony Mwangi, a public policy consultant wrote in an article published by the Business Daily in March.
“The recent fiscal policies have stifled this grassroots demand. By imposing a tax of over 35 percent on the importation of cement clinker and steel billets, lawmakers have inadvertently choked a crucial segment of the economy.”
