Nairobi Securities Exchange (NSE)-listed banks wrote off Sh75.06 billion in loans last year, highlighting the strain on households and businesses amid a softer economy that grew at the slowest pace in five years.
The write-offs, down from Sh87.87 billion in the previous year, signal a modest improvement in asset quality even as borrowers continued to grapple with high living costs and subdued demand for goods and services.
Banks typically write off loans once the likelihood of recovery through conventional channels such as asset auctions or restructuring is deemed minimal. The lenders make 100 percent loan loss provisions on written off loans.
Equity Group topped with write-offs rising to Sh27.44 billion last year from Sh22.29 billion in the previous year, followed by KCB Group whose write-offs fell to Sh14.22 billion from Sh25.52 billion. Their position as the largest lenders leaves them most exposed to shifts in asset quality.
Households have faced shrinking disposable incomes due to inflationary pressures and new or enhanced compulsory deductions towards social healthcare, affordable housing and retirement savings.
At the same time, businesses, especially small and medium enterprises, have been squeezed by weakening consumer demand and rising operating costs, including higher energy, financing and input prices.
The write-offs came in the period the Kenyan economy expanded at a slower rate of 4.6 percent in 2025, down from 4.7 percent the previous year, as growth in key sectors, including agriculture and manufacturing, moderated.
Last year’s economic growth was the slowest pace since 2020 when there was a 0.3 percent contraction due to Covid-19 disruptions.
The agriculture sector, which remains the largest segment of the economy, grew at a slower pace of 2.8 percent, down from 4.3 percent, driven by weaker output amid disrupted rainfall patterns. The manufacturing sector also slowed, expanding by 2.1 percent compared with 3.2 percent in 2024.
Equity Group notes that loan write-offs occur after ‘all practical recovery efforts’ have been exhausted and recovery is deemed unlikely. The lender says key warning signs include a sharp weakening in the borrower’s financial position and a decline in collateral value below the loan exposure.
‘The group writes off a loan balance when the credit department determines that the loans are uncollectible,’ states Equity in its latest annual report.
‘This determination is reached after considering information such as the occurrence of significant changes in the borrower’s financial position such that the borrower can no longer pay the obligation or that proceeds from collateral have failed to cover the entire facility outstanding.’
KCB says it writes off loans when it determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write off.
Last year saw NCBA Group write off Sh11.81 billion loans, up from Sh11.61 billion in 2024 while that of Absa Bank Kenya rose to Sh10.79 billion from Sh9.35 billion. lenders do not give up on written off loans but instead pursue them, mostly through third parties, and booked as impairment gains.
‘Although the group may write-off financial assets that are still subject to enforcement activity, it still seeks to recover amounts it is legally owed in full, but which have been partially written off due to no reasonable expectation of recovering in full,’ NCBA states in its annual report.
Another tier I lender, DTB Group, wrote off Sh4.09 billion, marking an improvement from Sh9.71 billion in the previous year, while Stanbic Holdings more than halved its write-offs to Sh2.53 billion from Sh5.51 billion.
Over the same period, Co-operative Bank of Kenya write-offs rose to Sh2.48 billion from Sh2.29 billion as that of Standard Chartered Bank Kenya increased to Sh1.65 billion from Sh1.58 billion. HF Group’s write-offs more than doubled to Sh49.28 million from Sh17.7 million.
The softer economic environment and elevated loan defaults prompted lenders to adopt a more cautious approach to credit growth, with a shift towards lower-risk segments and increased scrutiny of borrowers’ repayment capacity.
In addition, many banks have intensified collection efforts to cut slippage of loans into write-offs and restructured other loans to cushion distressed customers.
Lenders, through their lobby, Kenya Bankers Association (KBA), are pushing for a five percent reduction in Pay-As-You-Earn (PAYE) across all income bands as a targeted measure to boost households’ purchasing power and stimulate economic growth.
The lenders argue that real incomes in Kenya have declined by between 10.7 percent and 12 percent over the past five years, squeezed by rising living costs and an expanding burden of statutory deductions.
The statutory deductions include PAYE, the 1.5 percent Affordable Housing Levy, a 2.75 percent contribution to the Social Health Insurance Fund (SHIF), and higher National Social Security Fund (NSSF) contributions, which now top Sh6,480 per month for higher earners.
‘The banking industry believes that targeted measures to strengthen household purchasing power are essential for driving economic recovery, supporting businesses, creating jobs, and improving long-term fiscal sustainability,’ said KBA last Thursday.