CBK Survey Flags Personal Loans as Most at Risk in Coming Months

Kenyan banks are on high alert over a possible rise in personal loan defaults in the months ahead, as economic pressures tighten household budgets.

In a recent survey by the Central Bank of Kenya (CBK) June 2025 Credit Officer Survey revealed that lenders believe the personal and household loan segment will face the highest repayment strain compared to all other sectors.

In the survey, 44 per cent of bank credit officers predicted an increase in non-performing loans (NPLs) in this category during the third quarter of 2025. This is up from 38 per cent in the previous quarter. Seventeen per cent expect no change, while 39 per cent think defaults will drop.

“Respondents indicated that the level of NPLs is expected to remain constant in 10 economic sectors but increase in the personal and household sector during the next quarter,” the CBK report stated.

Interestingly, this caution comes even though banks have not changed their lending rules. Credit standards for all 11 monitored sectors, including manufacturing, agriculture, trade and real estate, remained steady between April and June.

While other areas such as real estate, manufacturing and construction are also expected to record more bad loans, the rise is likely to be smaller than in the personal lending space. In real estate, 34 per cent of lenders foresee more defaults, building and construction stands at 35 per cent, and manufacturing also at 34 per cent.

The CBK points to increased living costs and possible income shortfalls as reasons behind the expected repayment challenges for households. Loan demand in this category has surged, with half of the surveyed banks reporting more applications in the second quarter, up from 39 per cent in March.

Credit officers note that household loans are more vulnerable to job losses, pay cuts and rising expenses, making them a key sign of financial stress. In comparison, repayment struggles in business sectors tend to follow investment trends and market cycles.

By June 2025, the quality of bank assets had slipped slightly. The gross NPL ratio edged up to 17.6 per cent from 17.4 per cent in March, driven by a faster rise in bad loans (1.6 per cent) compared to loan growth (0.6 per cent). Total loans stood at Ksh 4.15 trillion, while NPLs continued to climb.

Although the CBK does not set policy from the survey, it notes that lenders are stepping up recovery plans. In the quarter ending September, 84 per cent of banks expect to push harder on personal loan recoveries, followed by trade at 79 per cent, real estate at 78 per cent, and construction at 76 per cent.

In personal lending, 24 per cent of banks eased their terms in the second quarter, the same proportion tightened them, while 54 per cent kept them unchanged. This suggests lenders are focusing more on collecting overdue loans than on restricting access to credit.

The survey covered 38 commercial banks and one mortgage finance company, representing the bulk of Kenya’s formal lending sector.

At the close of June, the industry’s total assets had grown to Ksh 7.85 trillion, up from Sh7.67 trillion in March. Deposits rose to Sh5.85 trillion, while pre-tax profits edged up to Ksh 74.6 billion. Liquidity stayed high at 58.6 per cent, well above the legal minimum of 20 per cent.