Personal loans lead in defaults: Survey
Individuals or households dominate the non-performing loan registers, according to a new Central Bank of Kenya survey.
Bad loans stood at about Sh3.5 billion, two % of amount given to households and individuals.
The sector comprising households and consumer durables purchases received Sh174 billion loan between October 2009 and October 2010.
Experts say despite the default rate having dropped compared to previous years, the economy slump played a big role in the failure by consumers to service their loans.
“There is a tendency to default when the economy or a sector is performing badly or when people feel they don’t have enough money to service loans during high inflation as they have to first cater for their basic needs,” said Diana Mureithi, a risk analyst at Nairobi-based Actuarial Services East Africa.
Economic recovery renewed confidence in personal loan market with the salaried workers being the most sought-after borrowers.
Banks are also warming to the growing middle-income segment as more Kenyans borrow to buy cars, expand or start businesses.
Statistics show new vehicle registrations up to the month of November 2010 stood at 178,878, a 10.5 % jump from the previous year’s 161,813, fuelled by availability of credit.
About 47,227 personal cars were registered in 11 months to November, up from 44,529 saloons and station wagons sold in 2009, Kenya National Bureau of Statistics show.
Arun Mathur, the chief executive officer of I&M Bank said banks have seen an upturn in applications for motor vehicles loans in recent years although some cars were intended for business purposes.
The increase in borrowing has also been driven by lower interest rates with banks having cut lending rates to as low as 13.86 % in December 2010 from 15.02 % in May 2010.
The growing appetite for loans has pushed banks to expand their reach, hiring sales people to go around towns and even rural areas to sell loans as banks’ liquidity improved after a period of high economic growth between 2004 and 2007.
However, analysts say some of the loans may have been acquired fraudulently and therefore never repaid.
At Sh118 billion, the loan portfolio to the private households is the single-largest amount after that given to the trade sector at Sh143 billion.
Kenya’s job insecurity has also contributed to the failure to repay loans.
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