Kenyans Face Tougher Loan Recovery Measures From Banks as Defaults Climb

• Central Bank of Kenya’s latest Credit Officer Survey shows that 42% of credit officers expect NPLs to decline in the next quarter
• Gross loans grew by 0.6% to KSh 4.123 trillion in March 2025, driven largely by increased borrowing in the personal, trade, and construction sectors
• Banks plan to ramp up recovery efforts in eight out of 11 key sectors, with the sharpest enforcement expected in the personal and household segments

Elijah Ntongai, a journalist at TUKO.co.ke, has over four years of financial, business, and technology research and reporting experience, providing insights into Kenyan and global trends.

Commercial banks in Kenya are gearing up to crack down on borrowers as non-performing loans (NPLs) continue to weigh heavily on lenders’ balance sheets.

The latest Credit Officer Survey by the Central Bank of Kenya (CBK) revealed that financial institutions plan to intensify recovery efforts in key sectors where loan defaults are proving most stubborn, particularly personal and household, trade, and real estate.

The report covering the first quarter of 2025 shows that although 42% of bank credit officers expect NPLs to decline in the next quarter, nearly a third (29%) anticipate a rise, with another 29% expecting the levels to remain unchanged.

Total loans from commercial banks in Kenya

Notably, gross loans from commercial banks rose by 0.6% from KSh 4.099 trillion in December 2024 to KSh 4.123 trillion in March 2025, with the growth mainly driven by increased lending in the personal and household, trade, and building and construction sectors.

Meanwhile, total deposits slightly declined by 0.2%, falling from KSh 5.739 trillion in December 2024 to KSh 5.73 trillion in March 2025.

Loan recovery efforts by banks

The personal and household sector is expected to record the sharpest increase in defaults, signalling trouble for individual borrowers struggling under economic pressure.

To respond, banks are preparing to intensify efforts to pursue loan defaulters. Intense credit recovery efforts are planned in eight of the 11 key economic sectors, led by the personal and household sectors.

The responses on the expected credit recovery efforts by the banks are depicted in the table below:

Only three sectors, Mining and Quarrying, Energy and Water, and Financial Services, will see banks maintain current recovery levels.

Credit demand in Kenya

Despite the rise in defaults, credit demand remained largely unchanged across most sectors during the quarter.

The trade sector was the only one that saw increased demand for credit, largely driven by working capital needs.

Other sectors, including tourism, manufacturing, and real estate, showed minimal variation.

Interestingly, traditional factors like the cost of borrowing, internal financing, and political risk had little to no significant impact on credit demand.

The CBK data suggests that while the broader economy may not be seeing drastic shifts in borrowing behaviour, the rising tide of defaults is forcing banks into a defensive stance.

With personal loans and household debt under close watch, Kenyans struggling with repayments should expect more aggressive follow-ups, tighter loan terms, and stricter enforcement in the months ahead.

Lona interest rates by banks in Kenya

In other news, the CBK reported a decline in average commercial bank loan interest rates to 15.77% following a 0.75% cut in the base lending rate to 10%.

Among banks with the highest loan rates are Middle East Bank (20.63%) and Access Bank (20.50%), while Citibank (11.14%) and Stanbic Bank (12.76%) offer the lowest.

Credit Bank, Kingdom Bank, and African Banking Corporation top the list for highest deposit rates. The CBK issued a directive urging banks to reduce lending rates to ease the burden on borrowers amid tough economic conditions.the

Proofreading by Jackson Otukho, copy editor at TUKO.co.ke.

Source: TUKO.co.ke