Banks risk Sh27bn as mortgage, matatu loan defaults jump 60%

Car and home owners have defaulted on loans totalling Sh27.8 billion in the 12 months to September last year, giving a peek into the nightmare that the two sectors have become for banks amidst the Covid-19 pandemic.

The Central Bank of Kenya (CBK) quarterly economic review shows the transport sector, which was affected by Covid-19 curbs including curfews and cross-border lockdowns, saw a 60% jump in bad loans of Sh16.4 billion from a similar period in 2020.

This is after bad loans rose from Sh27.5 billion in September 2020 to Sh43.9 billion in 2021.

On their part, home owners’ defaults rose by 20% or Sh11.5 billion, after the defaults increased from Sh57.7 billion to Sh69.2 billion, as workers servicing mortgages from their pay checks and businesses lost their incomes as a result of the pandemic.

The data showed that the two sectors recorded the highest jumps in defaults and explains why several banks with exposure to real estate and transport have turned to auctioning properties and vehicles as default surged.

“There has been an increase in the number of vehicles and houses being put on auction due to loan distress. This is despite having more auctioneers sharing the business, you might have noticed in the papers there are now very many players,” said CEO Garam auctioneers Joseph Gikonyo.

Mr. Gikonyo said despite the surge in the number of properties under distress uptake has been dismal as buyers have also been hit by the ravages of Covid-19.

He said some had also taken a wait-and-see approach, holding off investments in real estate ahead of the August elections.

By September 2020, the sectoral distribution of bad loans showed that trade remained with the biggest stock of bad debt at Sh99.1 billion followed by personal (Sh70.4 billion), manufacturing (Sh65.5 billion) and agriculture (Sh19.6 billion).

The data reflects the impact of Covid-19 pandemic on businesses especially the matatu and taxi operators after the government imposed a night curfew and restrictions on movement into Nairobi, Mombasa and Mandera leading to grounding of some vehicles.

At the height of the pandemic, many motorists turned their private cars into hawking vans as they sought an extra source of income. Some that had commercial cars on loan decided to give them up to lenders after they ran out of funds to repay the loans.

The government also imposed capacity limits on public service vehicles that also pushed some players out of business.

Lenders which had partnered with drivers to finance purchase of Suzuki Altos to operate ride hailing business under Uber Chap Chap were some of the most hit by defaults during the pandemic.

The cars became very popular when Uber introduced the affordable option in 2018, attracting scores of drivers with flexible purchase terms from local banks.

When the pandemic hit and curfews were put in place most drivers could not keep up with payments, resulting in repossession and an increase in auctions.

The Covid-19 pandemic has also hit the home ownership market, sending back property owners to rentals as Kenyans lost their jobs and concentrated on basic needs rather than repaying loans.

Kenya’s mortgage market saw a decrease of 1,022 mortgages or 3.7%, mainly due to repayments and fewer loans advanced due to the effects of the Covid-19 pandemic.

There were 26,971 home loans in the market in December 2020, down from 27,993 in December 2019.

The CBK blamed the drop on the impact of Covid-19, high cost of housing units, high cost of land for construction, low level of income and limited access to affordable long-term finance.

Massive job losses in 2020 at the height of the pandemic saw 737,500 workers lose jobs, including those in the informal sector.

Formal jobs in 2020 year contracted for the first time in two decades, with 187,300 positions lost as the economy shrank for the first time since 1992.

This affected borrowers’ ability to repay loans across sector, with gross bad loans increasing to Sh435.7 billion or 13.6% of total loans in the third quarter of last year.

The defaults saw a third of Kenyan loan accounts listed at credit reference bureaus (CRBs). TransUnion CRB said 4.6 million loan accounts are currently negatively listed against the total 15 million.