Banks Cut Household Lending for First Time in Seven Years as Defaults Surge

Kenyan banks reduced lending to households in 2024 for the first time since 2017, as high interest rates and rising defaults squeezed both borrowers and lenders.

Personal and household loans dropped by Sh138 billion to Sh943.84 billion, with the number of loan accounts falling by 1.42 million to 10.72 million. The segment, which represents more than 92 percent of all loan accounts, was the only one to contract even as credit to agriculture, real estate and trade grew.

The Kenya Bankers Association linked the pullback to rising non-performing loans. Personal NPLs climbed to Sh100.97 billion, or 10.7 percent of the loan book, up from 8.5 percent a year earlier. The deterioration coincided with a Central Bank Rate of 13 percent and average lending costs of 17.2 percent, with some loans priced as high as 25 percent. Household cash flows were further hit by new statutory deductions, pushing many borrowers below the one-third take-home threshold.

The contraction has tightened cash across the economy and hurt small businesses reliant on personal credit. To ease conditions, the Central Bank has cut its policy rate seven times to 9.5 percent, helping average lending rates decline to 15.24 percent by end-July. Even so, banks remain cautious.

A CBK survey in June 2025 showed 84 percent of lenders expect household defaults to rise through September, with most planning tougher recoveries including asset seizures. With personal credit still making up nearly a quarter of total loans and overall lending down Sh100.2 billion to Sh4.099 trillion, the outlook depends on whether lower rates and better pricing can revive borrowing without sparking fresh defaults.