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Banks intensify auctions as bad loans hit Sh717bn
The rise in defaults follows five years of falling real wages, as pay hikes lag behind inflation, shrinking purchasing power and forcing Kenyans to cut spending.
A growing number of Kenyans are facing auctions as banks intensify their loan recovery efforts to curb the fast-rising default rate, which hit a record of Sh717.5 billion or 17.4 percent of lenders’ total loan book in the quarter ended March.
According to the Central Bank of Kenya’s Credit Officer Survey, banks largely expect to step up loan recovery actions in eight out of 11 economic sectors in the current quarter ending June, and maintain the same pace in three others.
“The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio,” CBK said in its quarterly survey.
This signals a possible surge in auctions targeting Kenyans who have defaulted at a time when job losses and shrinking real wages amid stagnant pay have strained borrowers’ ability to repay their loans.
Houses, land and motor vehicles are the most common items used to secure loans, and banks have been issuing auction notices to sell these assets across the country.
Gross non-performing loans (NPLs) rose by Sh44.9 billion to Sh717.5 billion in the first quarter, up from Sh672.6 billion in the last quarter of 2024 when they stood at 16.4 percent of total loans – further worsening the quality of bank assets.
By the end of March, banks had loaned out a combined Sh4.1234 trillion, a modest 0.6 percent rise from Sh4.0993 trillion in December 2024, indicating a lending slowdown amid the surge in defaults.
Personal loan borrowers are the most vulnerable, with 84 percent of banks indicating that they will increase recovery efforts in this sector, which will affect individuals who borrowed for personal needs like buying cars, homes or paying school fees.
Outstanding loans in the personal and household segment stood at Sh554.6 billion as of February 2025, making it the third-largest borrowing category after trade and manufacturing.
The trade sector, which owes banks about Sh675 billion - currently the largest borrowing sector - is the second-most affected, with 76 percent of banks planning to intensify recoveries.
Other top sectors under pressure include real estate (73 percent), building and construction (68 percent), manufacturing (66 percent), transport and communication (66 percent), tourism (65 percent) and agriculture, where 55 percent of banks plan to step up recovery.
Only in the mining, energy, and financial services sectors do more banks maintain current recovery efforts than increasing them, at 58 percent, 54 percent, and 51 percent, respectively.
Bankers also expect defaults to continue rising in the personal and household, trade, and manufacturing sectors, which explains the increased recovery efforts facing these segments.
The surge in defaults comes as real wages decline for the fifth consecutive year, with pay rises failing to match inflation and resulting in shrinking purchasing power and forcing Kenyans to cut back on spending.
