According to a new survey conducted by the Central Bank of Kenya (CBK), more women prefer to cut back on spending to service their loans, while men prefer to dip into their savings to pay off debt. This reflects a difference in financial judgments between the sexes.

According to the CBK's recently released financial sector stability report, a majority of females (42%) prefer to cut spending on non-food items to cover debt repayment. According to the survey, 41.2 percent of females reduced their food spending to pay back loans.

On the part of men, the most preferred method of debt repayment is to dig into savings (44%), followed by reduced food expenses (39.1per cent).

According to the survey, more households were unable to service debt last year due to financial stress.

"According to the results of the 2021 survey, households' ability to settle maturing obligations has declined, resulting in high debt distress." Only 42.6 percent of borrowers were able to pay their maturing obligations on time, with 10.7 percent completely defaulting on their loans. In fact, 14.4% of respondents with existing loans in 2020/2021 applied for loan restructuring because they couldn't settle on time, according to CBK.

This has implications for rising non-performing loans and, as a result, concerns about financial stability.

"To mitigate this, households resorted to cutting other expenses, depleting savings, looking for additional work/business, and taking out another loan to repay." "Approximately 29.6 percent took out another loan to repay, worsening household indebtedness," the regulator added.

Reduced loan acceptance

The CBK anticipates a decrease in loan uptake by firms and households in the second half of this year as banks tighten credit conditions.

The regulator stated that, while Kenya's financial sector remains stable and resilient through 2022, supported by adequate capital and liquidity buffers, there are increased credit and operational risks that will impact lending.

"Banks tightening lending standards may increase non-performing loans and reduce credit uptake by firms and households, further undermining recovery and financial sector stability," according to the report.

Since last September, banks have significantly reduced lending to individuals and small businesses based on their risk profiles, citing an inability to assess their creditworthiness.

Negative listing moratorium

President Uhuru Kenyatta announced in September last year a one-year moratorium on credit reference bureaus (CRBs) negative listing of borrowers with loans under Sh5 million, reducing credit information sharing in the banking sector.

The suspension of the loan defaulter list was one of the measures put in place to help borrowers affected by the Covid-19 pandemic.

While protecting current defaulters, the directive has slowed lending, particularly for individuals and small businesses, which are viewed as riskier than large corporations.