Transport sector loan defaults double to Sh44b on Covid woes

Several matatus are seen at the Green Park Terminus in Nairobi. [Wilberforce Okwiri, Standard]

The transport and communication sector’s loan defaults have more than doubled during the Covid-19 pandemic, pointing to the distress that hit the sector as the State moved to contain the virus.

Latest Central Bank of Kenya (CBK) data shows that the sector recorded the fastest jump in non-performing loans (NPLs) from Sh21 billion at the onset of the pandemic in March 2020 to Sh43.9 billion at the end of September last year.

The mounting defaults, translating to a 109 per cent rise in loans that have remained unpaid for at least three months, followed Covid-19 control measures such as lockdowns, curfews and social distancing.

The sector is expecting a recovery this year after the State lifted lockdowns and curfews, and allowed vehicles to resume full capacity late last year.  

CBK's credit survey for September last year had shown the rise in defaults prompted 74 per cent of lenders to intensify their credit recovery efforts in the transport sector.  

Covid-19 control measures paralysed transport across counties and also cut the number of passengers as many people opted for remote working to lower risks of contracting the virus.

The transport sector NPLs have been rising quarter-on-quarter, with the steepest one coming in the three months to December 2020 when an additional Sh10.6 billion fell into default status.

Sector players such as public service vehicle operators, goods transporters and those running taxi businesses experienced a drop in their revenues in line with a slump in demand.

Firms that had taken asset financing loans on the strength of revenue projections found it difficult to keep up with debt servicing in an environment where cash flow did not match pre-Covid levels.

Gross loans in the transport and communication sector grew from Sh188.5 billion to Sh249 billion between March 2020 and September last year —a 32 per cent rise.

But loan defaults accumulated at a faster pace than that of new loans, taking 17.6 per cent of total loans that had not been serviced for at least 90 days.

The tourism, hotels and restaurants sector had the second fastest jump in loan defaults at 83 per cent from Sh8.3 billion in March 2020 to Sh15.2 billion in September 2021.

Another big jump (45.7 per cent) was in real estate where bad loans closed September at Sh69.2 billion compared to Sh47.5 billion at the onset of the pandemic.

The mounting defaults in the property market are a reflection of the struggles that mortgage holders are undergoing following salary cuts and job losses that were widespread after the pandemic set in.

Workers who took mortgages on the strength of their payslips have struggled to keep up with repayments while property developers who were counting on getting tenants or buyers have seen fewer takers.

But banks have started enjoying falling loan defaults in segments such as personal and household, building and construction and agriculture on the back of softening coronavirus-induced economic fallout.

Lenders have been reducing the money set aside for loan defaults, with many citing improving financial health of borrowers who had failed to keep up with repayments at the peak of the coronavirus disruptions.

Banks' pretax profits for the 10 months to October grew by 63.7 per cent to Sh161.9 billion, surpassing the full-year profits posted before the pandemic.

Covid 19 Time Series


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