Bad loans held by consumers overtook those of retailers, real estate and manufacturers, underlining the effects of shrinking payslips and layoffs on debt repayments.
Latest data from the Central Bank of Kenya (CBK) reveals that non-performing loans under households grew by 75.1 percent to Sh148 billion at the end of September last year.
This saw defaulted consumer loans surpass those held by retailers and wholesalers (Sh125 billion), manufacturers (Sh125 billion) and real estate (Sh99 billion).
Kenya Bankers Association (KBA) Chief Executive Raimond Molenje links the shifts in defaulted loans to workers' reduced disposable income, which has hurt demand.
“The performance of these sectors had been adversely affected by reduced demand by consumers with the tough economic conditions amidst reduced disposable incomes, resulting from higher taxes and higher cost of living,” said Mr Molenje.
Thousands of workers have breached the legal requirement that demands they take home at least a third of their salary following multiple cuts on their payslips, including the 2.75 percent deductions of gross pay for universal health care.
This additional deduction, together with the rise in NSSF contributions and the introduction of a 1.5 percent housing levy deduction on gross pay in July last year, has significantly cut workers' take-home pay.
Employers reckon that thousands of workers take home less than a third of their pay when pre-existing loan repayment obligations are accounted for.
Workers whose loans are not deducted from their payrolls are defaulting amid costly debt. The soft economy has also triggered layoffs and ultimately defaults.
This emerges in a period that has seen real wages fall for a fourth consecutive year, a sign of falling living standards as the squeeze from living costs continues to bite.
Bad loans across the industry grew by Sh45 billion in the year to January 2025, while the default rate rose to a record 17.2 percent at the end of February 2025.
