World Bank Sounds Alarm Over Surge in Kenya’s Non-Performing Loans
Kenya’s banks are in trouble as the World Bank has warned of the rapid rise of non-performing loans (NPLs), saying the trend could eat into lenders’ profits and weaken their capital bases.
In its latest Country Policy and Institutional Assessment report for Sub-Saharan Africa, the global lender said while Kenya’s financial system is generally stable, bad loans have emerged as a key vulnerability.
The World Bank report released on Friday, September 5, shows that NPLs in Kenya stand at 14.3%, making the country one of the top three in the region with the highest rates. Ghana is at 22.8% and the Republic of Congo is at 15.2%.
“Banking systems in the region are largely sound, but significant vulnerabilities remain,” the report noted, adding that while capital adequacy ratios are above the minimum regulatory thresholds, the rising stock of bad loans is a clear risk.
While highlighting the risks in the financial sector, the World Bank also acknowledged reforms in taxation and digital finance. It commended Kenya for strengthening tax collection through digital tax administration systems which have improved compliance and increased revenue mobilization.
Also, the report praised Kenya for advancing financial inclusion through digital credit services. As of September 4, the Central Bank of Kenya (CBK) has licensed 154 digital lenders, up from 85 in October last year. Over 700 applications have been filed since the licensing framework was rolled out in 2022.
In a statement, CBK said the vetting of digital lenders focuses on business models, consumer protection and integrity of directors and management. The regulator said digital lenders have become a key pillar of financial access in the country.
But the World Bank warned that unless the NPL challenge is addressed, the banking sector will come under pressure that will undermine its stability.
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World Bank Sounds Alarm Over Surge in Kenya’s Non-Performing Loans