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Central Bank of Kenya (CBK) Governor, Dr Patrick Njoroge, has warned commercial banks against engaging in predatory lending practices. In a press release issued on Tuesday, the governor said that such practices could lead to a surge in non-performing loans, hurting the financial sector’s stability.
“Predatory lending practices by banks can lead to a rise in non-performing loans and put the stability of the banking sector at risk,” said Dr Njoroge. “We urge commercial banks to be responsible and avoid such practices that may lead to financial distress for both the borrowers and lenders.”
The CBK governor also noted that the regulator had observed some banks offering unsustainable loan repayment terms to borrowers, which could lead to defaults. He further warned that such actions could damage the country’s credit culture and undermine financial inclusion efforts.
“We have noted some banks offering unsustainable loan repayment terms that may lead to defaults and impair the credit culture,” said Dr Njoroge. “Such actions undermine financial inclusion efforts and create unnecessary stress on borrowers.”
The governor called on commercial banks to adhere to responsible lending practices and ensure that they lend to borrowers who have the capacity to repay their loans. He also urged borrowers to take out loans that they can comfortably service and to avoid over-indebtedness.
“We encourage commercial banks to lend prudently and ensure that borrowers have the capacity to service their loans. We also urge borrowers to take out loans that they can comfortably service and avoid over-indebtedness,” said Dr Njoroge.
The CBK governor’s warning comes as the country’s financial sector grapples with a surge in non-performing loans. According to the regulator’s latest data, the ratio of non-performing loans to total loans in the banking sector rose to 14.1% in December 2022, up from 12.7% in December 2021.
