The banking sector is sharpening its focus on recovering personal and household loans as the industry grapples with the highest rate of non-performing loans (NPLs) in two decades.
- •A survey by the Central Bank of Kenya (CBK) reveals that 84% of lenders plan to intensify recovery actions in the personal lending segment during the second quarter of 2025, citing heightened default risk amid deepening economic strain.
- •Personal and household loans now stand out as the most problematic area in the country’s credit market, with nearly 40% of banks expecting defaults in this category to worsen.
- •The push for recoveries comes as the sector’s NPL ratio climbed to 17.4% in Q1 2025, up from 16.4% at the end of 2024, its highest level since the early 2000s.
Alongside personal lending, banks will ramp up recovery efforts in sectors traditionally marked by high exposure and cyclical cash flows. About 76% of lenders intend to increase collections in the trade sector, followed by 73% targeting real estate, 68% in building and construction, and 66% each in manufacturing and transport.
While the personal loan recovery rate has seen only a marginal increase from 82% in December 2024, the manufacturing sector registered the most significant quarterly jump, from 61% to 66%, signaling a rising concern over loan performance in productive industries.
Conversely, sectors such as real estate, construction, and transport showed a slight decline in recovery intensity, though they remain areas of close scrutiny. Little recovery efforts are expected in mining, energy, and financial services, suggesting greater stability in those areas. The only areas that recorded banks willing to ease collection efforts were real estate and agriculture, both at just 3%.
Despite these challenges, the industry remains well-capitalized and profitable. Banks recorded a pre-tax profit of KSh 73.5 billion in the first quarter of 2025, marking a 25.8% increase from the previous quarter. This rebound was primarily driven by significant cost-cutting measures, with expenses falling by KSh 27.6 billion.
