The number of non-performing mortgages in the banking sector in 2022 rose by the sharpest margin in five years, the latest data by the Central Bank of Kenya (CBK) shows, pointing to the deep struggles of borrowers in a deteriorating economic environment.
The stock of non-performing mortgages in 2022 closed at Sh37.8 billion, up 33.6 per cent compared to the Sh28.3 billion reported at the close of 2021, according to the CBK data.
It is the first time since 2019 that the banking sector’s non-performing mortgage book is above the Sh30 billion mark and comes at a time when data from the Kenya National Bureau of Statistics (KNBS) shows that the real estate sector’s contribution to the economy declined from 9 per cent in 2021 to 8.6 per cent in 2022.
“The outstanding value of non-performing mortgage loans increased from Sh28.3 billion in December 2021 to Sh.37.8 billion in December 2022. The non-performing mortgage loans to gross mortgage loans ratio was 11.4 per cent in December 2022 compared to 12 per cent in December 2021. The ratios were below the industry gross NPLs (non-performing loans) to gross loans ratio of 13.8 per cent in December 2022, and 14.5 per cent in December 2021” the apex bank said.
The last time the pile of bad debt on the banking sector’s mortgage book posted such high year-on-year growth was between 2017 and 2018 when it grew by 39.6 per cent to close December 2018 at Sh38.1 billion.
The data from CBK also shows that the average mortgage size disbursed by players in the banking sector declined by 2.2 per cent to Sh9 million, while the number of outstanding mortgages grew by 4 per cent to 27,786.
“There were 27,786 mortgage loans in the market in December 2022, up from 26,723 in December 2021. This was an increase of 1,063 mortgages or 4 per cent. This was mainly due to new mortgage loans granted in the year” CBK said.
The data further showed that the value of mortgage loans outstanding was Sh261.8 billion in December 2022 compared to Sh245.1 billion in December 2021. About 83 per cent of lending to the mortgage market was by eight institutions.
The CBK data also revealed that mortgages became more expensive in 2022 with the average interest charged standing at 12.3 per cent compared to 11.3 per cent in 2021, as various banks implemented risk-based pricing following approval from the market regulator. The tenor of the average mortgage extended by banks declined from 12 years in 2021 to 10.9 years in 2022.
The average size of mortgages under State-backed affordable housing has increased more than a quarter on the back of rising inflation that has pushed up the cost of construction.
The government has been on a campaign to improve the uptake of mortgages through vehicles such as the Kenya Mortgage Refinance Company (KMRC), even though the cost of facilities remains a concern.
For example, data shows that the average size of home loans KMRC financed last year went up 27.78 per cent to Sh2.99 million from Sh2.34 million the year before—reflecting a similar trend of rises in the cost of facilities offered by commercial banks.
The agency refinanced 1,948 mortgages valued at Sh5.83 billion, a 239.37 per cent climb from 574 home loans worth Sh1.34 billion in 2021.
Data by KNBS shows that construction costs shot up by 7.1 per cent last year owing to a sharp rise in the prices of key inputs such as cement, steel, bitumen and fuel, which slowed down the steep growth the sector enjoyed in 2021.
The data further shows the Construction Cost Index, which tracks the cost of construction inputs, rose to 113.65 per cent in the fourth quarter of 2022 up from 106.12 per cent in the final quarter of 2021. It is the fastest annual growth in construction costs since KNBS rebased the index in 2019.
In 2020, the cost of construction increased by 2.59 per cent amid supply hitches due to Covid-19 restrictions that shut down global supply chains. The costs rose further by 3.44 per cent in 2021 as demand for construction materials increased following the lifting of the Covid-19 restrictions, before rising by 7.1 per cent in 2022.
The construction index tracks the cost of 27 key construction materials including cement, steel and bitumen, five major equipment including rollers, mixers, excavators and compressors and five labour elements including casual labourers as well as machine operators, transport and fuel.