Personal loans defy defaults after Covid pay cut, layoff woes

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Economy

Personal loans defy defaults after Covid pay cut, layoff woes


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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • Massive layoffs, pay cuts and unpaid leave policies adopted by Kenyan firms at the height of Covid-19 pandemic shocks last year did not trigger spikes in personal loan defaults, latest industry data shows.
  • Central Bank of Kenya (CBK) data suggests non-performing loans among households accounted for Sh1.9 billion, or 2.83 per cent, of the Sh67 billion loans that were not repaid in nine months through December 2020.

Massive layoffs, pay cuts and unpaid leave policies adopted by Kenyan firms at the height of Covid-19 pandemic shocks last year did not trigger spikes in personal loan defaults, latest industry data shows.

Central Bank of Kenya (CBK) data suggests non-performing loans among households accounted for Sh1.9 billion, or 2.83 per cent, of the Sh67 billion loans that were not repaid in nine months through December 2020.

Defaults in the loans to homes, which had jumped 19.05 per cent to Sh67.6 billion in March 2020 compared with three months earlier, remained in single-digit in subsequent quarters even after the onset of partial lockdown measures.

Personal loans are largely secured on strength of payslips.

Firms resorted to laying off workers, slashing salaries and adopting unpaid leave policies to cut operating costs in April last year after public health authorities announced an initial tighter trade shutdown and travel restrictions.

The CBK credit market data suggests that bad loans amongst households rose 3.11 per cent to Sh69.6 billion in the quarter ended June, 5.6 per cent to Sh73.5 billion in the one through September before falling 5.58 per cent to Sh69.4 billion in December 2020.

“When I lose a job, it’s not always immediate that I will run out of funds to service the loan. The longer I stay out of work, the more difficult it’s for me to service the loan,” said NCBA Group chief economist Raphael Agung’.

“I could have lost the job today, which counts as unemployment data, but my actual liquidity materialises three or five months out.”

The Kenya National Bureau of Statistics estimated in the quarterly Labour Force Survey that about 1.72 million workers were laid off in the quarter to June when economic output contracted by 5.5 per cent — the first slump in more than a decade.

However, the unemployment rate — measured by persons who do not have a job and were actively looking for employment two weeks before the survey — fell to7.2 per cent in the third quarter after authorities started easing shutdown measures from 10.4 per cent in the prior quarter.

This was after about 1.8 million new jobs were created largely on account of youth employment or the Kazi Mtaani programme.

The Sh10 billion initiative employed youth in cleaning drainage lines, garbage collection, cleaning streets, growing trees and rehabilitation of public facilities.



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