Personal loan defaults drop by 2 billion shillings on return of CRBs

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Economy

Personal loan defaults drop by 2 billion shillings on return of CRBs


Central Bank of Kenya. PHOTO FILE | NMG

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Summary

  • Nonperforming loans (NPLs) among households, largely secured by strong payrolls, fell to 71.5 billion shillings in March 2021, from a peak of 73.5 billion shillings last September after a eight-month sequence of layoffs.
  • Companies resorted to laying off workers, cutting wages and adopting leave without pay policies to cut operating costs in April last year after public health officials announced a tighter initial closure of trade and travel restrictions.

Defaults on personal loans fell by 2 billion shillings in six months after the suspension of listing with credit reference bureaus (CRB) ended, signaling in part a slowdown in company layoffs from of the last quarter of 2020.

Nonperforming loans (NPLs) among households, largely secured by strong payrolls, fell to 71.5 billion shillings in March 2021, from a peak of 73.5 billion shillings last September after a Eight-month streak of job cuts, according to Kenya’s latest Central Bank statistics show.

Companies resorted to laying off workers, cutting wages and adopting leave without pay policies to cut operating costs in April last year after public health officials announced a tighter initial closure of trade and travel restrictions.

To protect distressed borrowers, including households, from the economic shocks of the Covid-19 pandemic, the CBK suspended the list of defaulted loans from April 1, 2020, along with Kenya’s three CRBs for six months until ‘to September 30.

Credit market data from the CBK suggests bad debts among households jumped 21.2 billion shillings, or 40.54%, between March and September 2020 to peak at 73.5 billion shillings before plummeting over the next three months.

“The biggest piece [of personal loans] reflect salary loans issued through the direct debit system.

“The impact of Covid in terms of payroll loans particularly between March 2020 and December 2020 may not show much due to the moratorium and loan restructuring,” said Samuel Tiriongo, head of research at Kenya Bankers Association.

Most of the surge in bad debts on households was recorded at the height of pandemic closures and travel restrictions between April and June 2020, when NPLs jumped from 17.3 billion shillings to 69.6 billion shillings. of shillings.

The economy in this quarter sank into a low, with gross domestic product – a measure of economic output – contracting 5.7% and more than 1.7 million workers lost their jobs.

Results from the Stanbic Bank Kenya Purchasing Managers Index – a measure of month-to-month private sector activity, including employment – suggest companies have cut jobs between February and September 2020 before starting to rehire with lower wages as they rushed to stay afloat amid the Covid-19 blows on sale.

Bad debts related to households fell from 4.1 billion shillings in the three months ended December 2020 to 69.4 billion shillings, before increasing by 2.1 billion shillings in the quarter to March 2021 to 71.5 billion shillings.

“The longer I am out of work, the harder it is to repay the loan,” said Raphael Agung ‘, chief economist of NCBA Group, in a previous interview.

“I could have lost my job today, which counts as unemployment data, but my real cash comes in three or five months.”

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