NAIROBI, Kenya – Kenya’s loan default rate has climbed to its highest level in two decades, underscoring the growing financial distress facing households and businesses amid a sluggish economy.
New data from the Central Bank of Kenya (CBK) shows that the ratio of non-performing loans (NPLs)—loans unpaid for more than 90 days—rose to 17.6 per cent by June 2025, up from 17.4 per cent in April. This is the highest NPL rate recorded since the early 2000s.
From a total loan book of Sh4.045 trillion held by banks as of December 2024, the surge suggests that more than Sh712 billion is now at risk of not being repaid.
Personal Loans Lead in Defaults
CBK Governor Kamau Thugge said the spike in bad loans is most pronounced in the trade, personal and household, tourism and hotels, and construction sectors—areas that have been particularly vulnerable to economic shocks.
“Increases in NPLs were noted in trade, personal and household, tourism and hotels, and building and construction,” Thugge said in a statement.
The CBK attributes the worsening default rate to job losses, stagnant wages, and rising living costs, all of which have made it harder for borrowers to keep up with repayments.
Personal and household loans are emerging as a key pressure point for banks.
Nearly 40 per cent of lenders expect defaults in this segment to worsen in the months ahead, according to the CBK’s latest Credit Survey.
A Decade-Long Decline
Long-term trends also paint a grim picture. Kenya’s NPL ratio has more than doubled over the past 10 years—from 6.8 per cent in 2015 to the current 17.6 per cent—reflecting deeper, structural repayment challenges that persist despite recent policy interventions.
The CBK’s latest quarterly survey identifies several high-risk sectors, including manufacturing, real estate, construction, and financial services, which now join personal loans on the watchlist for rising credit risk.
Despite the worsening default trend, the CBK maintains that the banking sector remains stable, citing adequate provisioning for bad loans and sufficient capital and liquidity buffers.
“Banks have continued to make adequate provisions for the NPLs,” Thugge said.
Uptick in Credit Uptake
Notably, there are signs of renewed borrowing appetite as lending rates ease.
Private sector credit growth rebounded to 2.0 per cent in May, up from 0.4 per cent in April and a contraction of -2.9 per cent in January.
“This reflects improved demand in line with the declining lending interest rates, and dissipation of exchange rate valuation effects on foreign currency-denominated loans following the appreciation of the Shilling,” CBK noted.
Still, with nearly one in five loans now classified as non-performing, banks are intensifying recovery efforts, especially in the most affected sectors.
The CBK says 33 per cent of banks expect personal loan defaults to rise further between April and June.
