Default on mortgages and loans advanced to the transport sector has crossed the Sh 100 billion mark in the wake of layoffs. This is according to a report made by fresh Central Bank of Kenya (CBK) data.
The increase has been attributed to wake of layoffs, business closures and travel restrictions triggered by the Covid-19 pandemic. CBK governor Patrick Njoroge has flagged loan defaults as the biggest risk to the country’s banking industry.
Transport and real estate sectors topped loan defaults over the nine months to December last year. The CBK data shows that the cumulative value of loans defaulted by the transport and real estate sectors jumped 45.25% between March and December to Sh 99.5billion.
Defaults in construction
Defaults in construction jumped 4.6% to Sh28.6 billion, pushing defaults in the transport and property market to Sh 128.1billion in December from Sh 92.5billion. Real estate recorded a 29.2% jump in bad loans between March and December to Sh 61.4 billion, largely due to job losses. Majority of Kenya’s mortgage loans — which stood at 27,993 accounts valued at Sh237.7 billion in December 2019 were secured on strength of salaries.
According to NCBA Group’s chief economist, Raphael Agung the mounting defaults in the property market are a reflection of the struggles that mortgage holders are undergoing in an economy that has witnessed a string of job losses in recent months across nearly all sectors as corporates intensify austerity measures to protect profits. This has seen workers who took mortgages on the strength of their pay slips default. The slowdown in real estate is hurting property developers who are finding it difficult to sell units that were built on loans.
“For the mortgage book, servicing ability was largely impaired by job losses. For those who had taken mortgages on account of their salaries and the pay was no longer forthcoming, the loan got impaired,” said Mr. Agung.
