Kenyan Credit Market Set to Slow as Effects of COVID-19 Pandemic Take Hold

Kenyan Credit Market Set to Slow as Effects of COVID-19 Pandemic Take Hold

The Kenyan credit market will come under severe pressure as the COVID-19 pandemic impacts the Kenyan economy, with GDP growth expected to slow to between 4.5%-5.5%1, down from the previously forecasted 5.9%.

As individuals and businesses struggle to meet their credit obligations the number of accounts going into default and becoming classed as non-performing loans (NPLs) could increase2, according to the newly released TransUnion Q1 2020 Kenya Market Analytics Report.

Launching the report this week, 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 an increased demand for credit in the banking sector in the areas of trade/business, mobile and personal loans in Q1 2020. The total number of loan accounts increased 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.

Since Q4 2019, non-performing loan rates have 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. “Increases in non-performing loan rates across product types are pushing the market to find solutions that price loans according to anticipated risk. Market demand for a risk-based pricing model is high,” said Tayengwa.

		Kenyan Credit Market Set to Slow as Effects of COVID-19 Pandemic Take Hold

Performance by sector

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.

Market trends across categories

With mobile loan interest rates ranging from 4.8% to 7.5%, the banking sector leads the market in terms of the number of accounts listed. The annual value of new business for mobile loans is now above KES 100 billion. Importantly, mobile loans are increasing financial inclusion for younger generations. Gen X (born between 1965 and 1979) and Millennials (born 1980-1994) account for 60% of all the open mobile loan accounts. Approximately 51 million mobile accounts have been opened by Millennials, a cohort that’s active in both formal and informal employment and business ventures.

In comparison, just 8.2 million mobile loan accounts, with a total value of approximately KES 57.6 billion, are held by consumers in the Baby Boomer generation (born 1944-1964). This cohort is generally more financially stable and mature in financial management, and therefore presents a significant opportunity to lenders.

Around 93.8% of mobile loans (89 million) originate from regulated financial institutions. Of the roughly 10.2 million mobile loan borrowers in Kenya, each has an average of 9 mobile loans.

The number of new personal loans opened dropped from around 195,000 in Q4 2019 to 104,000 in Q1 2020. In the banking sector, new accounts opened decreased from approximately 157,000 in Q4 2019 to 95,000 in Q1 2020.

It is expected that government measures to cushion the economy against the aftermath of COVID-19 will 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.


The asset finance space in Kenya is well established and continues to grow in terms of both number of loan originations and principal value disbursed. Major banks focusing on asset financing hold between 15% and 30% of their total loan portfolio in these products. The number of new asset finance accounts opened by FinTechs has dropped by 93% between Q4 2019 and Q1 2020.

In the last year alone, the number of overdraft accounts grew by 62%, although the average principal amount dropped by 20% over the same period. The banking and microfinance sectors dominate this market. While most accounts are opened in banks, microfinance institutions offer higher average principal amounts per individual. However, limits dropped considerably in the last two quarters of 2019.

Recent market shifts present several opportunities for lenders to grow their credit card portfolios. Most outlets have embraced the use of “plastic money” and lenders have run campaigns to shift consumers away from using hard currency. Cash payments are being discouraged and online shopping is on the increase.

The report states that there is a great deal of potential in the Kenyan mortgage market. Active accounts are up 25%, from 42,000 in Q4 2018 to 56,000 in Q1 2020. The Kenyan government is determined to prioritise housing as part of its “Big Four” agenda. Despite its potential, the mortgage market is experiencing certain setbacks, largely due to the high cost of housing and mortgage loans. Lenders need to assess the ability of borrowers to repay mortgages based on both the level and sustainability of their income and the validity of collateral offered.

Creating trade finance solutions has become an area of focus for most banks in Kenya. The banking sector holds approximately 96% of all trade finance accounts and has the highest average principal amount for these loans. The outstanding balance for trade finance facilities rose from around KES 261 billion in Q4 2019 to KES 280.2 billion in Q1 2020. Dynamic customer needs, a changing business environment and competition are compelling banks and microfinance institutions to become more competitive and innovative. There’s a growing focus on reducing turnaround times and using blockchain technology to eliminate paper-based letters of credit and reduce the threat of fraud.

 Government relief measures present opportunities to support customers

The Kenyan government has taken measures to cushion the economy against the aftermath of COVID-19. The income tax rate has been reduced by 5% and the turnover tax rate by 2%. This presents an opportunity for takeovers, top-ups and acquisitions.

Tax relief of 100% has been offered to those with an income of up to KES 24,000, and the central bank has released KES 35.2 billion as additional liquidity to banks to support borrowers in distress as a result of COVID-19.

“These measures present an opportunity for banks to support customers through the crisis through loan restructuring, new product offerings, upselling, and encouraging deposits and savings — which in turn will assist banks with customer retention and offer some protection against an expected increase in defaults and non-performing loans,” said Tayengwa.

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Kenyan Credit Market Set to Slow as Effects of COVID-19 Pandemic Take Hold

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