Central Bank of Kenya (CBK) Governor Dr Patrick Njoroge.

Bad loans have dropped to a 12-month low of 13.6 per cent of total loans in October according to the Central Bank of Kenya.

The industry’s non-performing loan ratio hit 13.6 per cent in October last year but surged to 14.5 per cent in February, this year.

Since then the ratio of defaulters to good borrowers has fallen to 14.2 per cent in April, 14 per cent in June, 13.9 per cent in August to 13.6 per cent in October.

This is an indication that borrowers have resumed making payments after CBK lifted the one-year moratorium in March, this year, that had allowed banks to suspend principal and interest payments and lengthen the maturity of loans.

“The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios. The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.6 percent in October compared to 13.9 percent in August,” CBK Governor Dr Patrick Njoroge said in the latest monetary policy statement.

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“Repayments and recoveries were noted in the trade, manufacturing, personal and household and financial services sectors,” Dr Njoroge said.

The reduction in defaulters might boost confidence in banks to open their purses to the private sector.

Private sector lending has, however, declined to an average growth of 7.4 percent far from 8.1 percent reported last year.

The last time loans to the private sector increased by double digits was before the introduction of the rate cap, in May of 2016.

As defaults come down Kenya hopes banks will lend to private businesses and help with the economic recovery if only politics and new strains of Covid-19 do not reverse the recovery trend.

The MPC has held the Central Bank Rate (CBR) at seven percent for the eleventh straight Monetary Policy Committee meeting indicating current policy stance remains appropriate to boost economic recovery prospects this year.

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