Borrowers have defaulted on an astounding Sh82.9 billion in bank loans within a mere four-month period, highlighting the prevailing economic challenges and leading to a significant increase in the share of non-performing loans (NPLs).

The latest data from the Central Bank of Kenya (CBK) reveals that the NPLs ratio reached 14.9 per cent in May, up from 13.3 per cent in December, as the accumulation of bad loans intensified.

Over this period, the stock of bad loans surged from Sh487.7 billion in December to Sh570.6 billion by the end of April, indicating a further rise in non-payments.

This distressing figure signifies that the current NPL ratio is only surpassed by the 15.04 per cent recorded 16 years ago in June 2007 when the gross loan book amounted to Sh470 billion and gross defaults stood at Sh70.7 billion.

The CBK has pinpointed several sectors experiencing spikes in non-performing loans, including manufacturing, trade, real estate, and transport and communication.

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CBK Governor Kamau Thugge attributed the surge in defaults to both the adverse business environment and the delayed payments from national and county governments.

Thugge elaborated on the reasons behind the mounting NPLs during a post-monetary policy meeting (MPC) briefing on Tuesday, stating, "Part of the reason why NPLs have been increasing is broadly into two areas. One is the business environment and the other is the fact that the national government as well as the county governments have not been paying some of their suppliers."

The prolonged duration taken by government entities to settle their dues has created a predicament for many contractors and suppliers who rely on loans from banks, assuming that the government will never default on its payments.

Consequently, these businesses find it increasingly challenging to fulfil their loan obligations due to the extended delay in receiving their expected payments.

The Treasury has faced difficulties in promptly settling its debt with suppliers, leading to late disbursements of allocations to counties and an accumulation of pending bills in the devolved units.

As per Treasury data, outstanding national government pending bills reached Sh537.2 billion by the end of March, marking a 23.6 per cent growth compared to Sh434.5 billion during the same period last year.

The pending bills for counties amounted to Sh159.7 billion in March.

Addressing the escalating issue, Equity Group's chief credit officer, Emmanuel Mac Deh, disclosed during the bank's annual general meeting that they have established a specialized unit to address loans that have fallen behind on repayments.

Deh emphasized their commitment to proactive measures.

"We continue to do early alert meetings. We have created a special assets unit that will look at restructures when it is necessary. In a challenging environment, you go back to the basics, which means keeping exposures to short term and selectively to medium term," Deh stated.

The escalating trend of defaulted loans and the consequent rise in non-performing loans present a pressing challenge to the Kenyan banking sector and the broader economy.

It is imperative for all stakeholders, including government entities, financial institutions, and businesses, to collaborate and devise strategies that address the root causes of defaults while promoting sustainable economic growth.