The number of bank loan accounts dropped by 1.52 million in the year ended December 2023, marking the first dip in five years as individuals and households shunned fresh loans amid a rise in interest rates.
Latest Central Bank of Kenya (CBK) data shows the accounts dropped to 12.92 million at the end of last year from the sector’s peak of 14.44 million that had been recorded in the previous year.
The dip, which is the first since the drop that was witnessed during the rate cap regime of between 2016 and 2018 when banks locked out borrowers they deemed risky, has come on the back of soaring interest rates.
The drop in the number of bank loans accounts could suggest borrowers were shunning expensive loans in the year CBK raised the benchmark lending rates thrice and that banks were turning away loan seekers on the back of mounting defaults on payments.
During the year, personal and households loan accounts, which made up 94 percent of the sector’s loan accounts, dipped by 1.56 million to 12.15 million accounts from 13.7 million in the previous year as interest rates hit highs of 25 percent.
Other drops in the number of loan accounts were seen in agriculture (9,503), transport and communication (1,541) and manufacturing (463).
Growth in the number of loan accounts were however seen in trade (41,588), mining and quarrying (1,642), financial services (935), tourism, restaurant and hotels (53), energy and water (47) and seven more in building and construction.
CBK on December 5 raised the central bank rate to 12.5 percent from 10.5 percent, making it the highest point in 11 years to sum up the year that proved difficult for borrowers as the costly loans, elevated price of goods and services and new statutory deductions such as housing levy weakened their ability to service loans.
Borrowers had, in the environment of rising cost of credit, raised the stock of loan defaults to Sh651.81 billion or 15.6 percent of the sector’s Sh4.183 trillion loan book at the end of December 2023.
At 15.6 percent, the non-performing loans ratio was the highest since June 2007 when the figure stood at 15.4 percent.
Banks posted a pre-tax profit of Sh226.3 billion in the year ended December 2023, being a decline by 9.3 percent from Sh244.1 billion recorded in the preceding period as the mounting loan defaults forced them to increase provisions.
The sector’s decline in profit marked a rarity for the sector that has generally been growing profits. The only recent years in which the sector’s profit dipped was in 2017 on the impact of interest rate capping law and in 2020 when Covid-19 disrupted businesses.
