The Kenyan credit market is coming under severe pressure as the COVID-19 pandemic impacts the Kenyan economy. According to the latest TransUnion Q1 2020 Kenya Market Analytics Report, the market is facing an increase in defaults and non-performing loans (NPLs), despite banks restructuring loans to help struggling individuals and businesses. 

The report showed an increased demand for trade, mobile and personal loans in Q1 2020, with the total number of loan accounts increasing by 21%, from 108.2 million in Q4 2019 to 131.4 million in Q1 2020. This was likely due to a high demand after the festive season to fund items like school fees and boost business cashflows. Approximately 92% of accounts opened were mobile loans, with more than 40 mobile loan lenders active in the Kenyan market.

However, there was a sharp decline in new business loans, despite the repeal of the interest cap in November 2019, which opened many opportunities for funding both large businesses and small and medium-sized enterprises (SMEs) that had suffered from a cash flow shortage. Contrary to the expectation that the market would advance more loans following the repeal, TransUnion’s data showed just 27,000 new business loans in Q1 2020, down from 58,000 in Q4 2019. 


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Since Q4 2019, non-performing loan rates increased by 90 basis points (bps) for credit cards (at 12.6% in Q1 2020, up from 11.7% in the previous quarter), by 170 bps for mobile loans (9.5%, up from 7.8%), by 170 bps for mortgages (7.4%, up from 5.7%), and 280 bps for personal loans (17.4%, up from 14.6%). The current overall market NPL rate is 12.7%, according to the Central Bank of Kenya. 

Overview of the formal lending market in Kenya, Q1 20203

Q4 2019 Q1 2020 % change, Q on Q
Total accounts 108.2M 131.4M 🡩 21.4%
Total borrowers 20.7M 21.7M 🡩 4.8%
Active accounts 17.6M 23.1M 🡩 31.3%
Average number of accounts per borrower 5 6 🡩 20.0%
Average active accounts per borrower 2 2
Borrowers with active accounts 7.2M 10.1M 🡩 40.3%

 

TransUnion Africa Product Director Samuel Tayengwa said while the Q1 2020 data did not reflect the impact of COVID-19, it provides a valuable pre-pandemic baseline point for the Kenyan credit market. 

“With COVID-19 changing the economic and consumer landscape at pace, the Q1 2020 report provides a valuable benchmark for the last full quarter before the impacts of the pandemic start to be felt and understood. This will allow the market to truly evaluate the impact of the pandemic in future quarters. We’re likely to see a deterioration in the Q2 2020 data, reflecting the impact of COVID-19 on the credit market from April 2020,” he said.

The report showed that the banking sector and Sacco sector both have the highest number of performing accounts compared to non-performing accounts (93% of the total accounts for each sector is performing). In all, banks currently hold 70.4% of NPLs in the credit market, down from 92.7% in Q1 2016. Most non-performing accounts in the banking sector (around 8.3 million in Q1 2020) are mobile loans, which account for 75% of total bank accounts opened. NPLs are defined as those that are over 90 days past due.

FinTechs account for 26.7% of all NPLs in the market, up from an average of just 1.1% in Q1 2016. There’s a high rate of NPLs in this sector (38.6% by accounts). Mobile loans are prevalent among FinTech lenders, making them more susceptible to fraud. In addition, structured recovery plans are uncommon in this sector.

Tayengwa said government measures to cushion the economy against the aftermath of COVID-19 would help unlock disposable income and ease indebtedness for some, or create an opportunity for loan top-ups, upselling and the acquisition of new credit facilities. These measures include 100% tax relief for people earning up to KES 24,000. “In addition, it is anticipated the repeal of interest rate caps will increase the demand for personal loans, as lending institutions will no longer be as stringent or risk averse and will be more able to price for higher risk consumers,” said Tayengwa.

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Featured Image Credits: Bizna Kenya

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