Top banks hold Sh5.7trn assets as loans collateral

The collateral held by the banks, which is over a quarter of the Kenyan GDP, was 1.5 times the loans issued by the lenders at Sh3.6 trillion, underlining the banks’ reliance on security to issue loans.

In global markets such as the United States, collateral held by banks is approximately 70 percent of their loan book, with most of the lending backed by cash flow, guarantees and credit history of the borrower.

This shows that mainstream lenders are trailing personal credit digital lenders with roots in Silicon Valley who are increasingly relying on mobile phone algorithms to lend to millions, including the unbanked.

While the trillions worth of collateral is providing a buffer to lenders in the event of default, it exposes borrowers to loss of assets like land, cars and shares that are often sold at a discount in auction yards.

Already, the top banks are fighting with multiple borrowers in court for selling loan security at huge discounts relative to their market prices.

“Historically, the risk of borrowers defaulting was high, so banks were seeking high coverage. Unfortunately, that has remained the case even when repayment rate has improved and more information about borrowers is available,” said Francis Mutonyi, a financial consultant with Goldplus Advisory.

The nine banks, which hold 75.5 percent of Kenya’s banking market share, had gross non-performing loans of Sh553.8 billion loans at the end of 2025, which represents 15.1 percent of their credit offered households and businesses and is lower compared to the industry default rate of 15.4 percent.

The bulk of the collateral at nearly half of the securities is in the form of homes, office blocks and land, highlighting how property ownership and access to loans are tied together.

Common assets used as collateral include car logbooks, shares and debentures.

KCB Group, with a loan book of Sh1.1 trillion, had security for loan defaults of Sh3 trillion. The group said it did not have a breakdown of the collateral apportioned to the subsidiaries of Kenya, Uganda, Tanzania and DR Congo.

Equity Group had security worth Sh784.4 billion, including land at Sh709 billion, shares valued Sh8.7 billion and assets classified as others valued at Sh75.7 billion.

NCBA Group had assets valued at Sh529.1 billion held as collateral of which property was Sh280.2 billion, logbooks Sh59.4 billion and debentures Sh152.2 billion.

The bank had a loan book of Sh317.1 billion.

Co-operative Bank of Kenya had collateral of Sh208.9 billion, made up of land (Sh113.7 billion), logbooks (Sh36.09 billion) and debentures (Sh59.1 billion).

This indicates that NCBA, Equity and Co-operative had Sh1.1 trillion worth of real estate and land as security.

Without land, most Kenyans lack collateral to access financial services, restricting their ability to invest.

“Risk-based lending has not fully matured in Kenya, despite the introduction of the credit reference bureau (CRB) system,” said Mr Mutonyi.

“Even borrowers with strong cash flows, good banking history, and positive CRB records still find it difficult to obtain unsecured business financing,” he added.

Kenya has three credit bureaus, with the first starting operation in 2010 in what was expected to help banks lend more to those without security and lower commercial lending rates by improving credit information in the banking sector.

But despite the presence of a credit information pool in Kenya, commercial bank in the country have not yet passed on the benefits.

Fintech firms like Tala and Branch argue that their technology, which relies on an algorithm that builds a financial profile of customers, minimises the risk of default.

Using machine learning algorithms, the apps assess the creditworthiness of borrowers by scanning personal data on their phones, including contacts, mobile money transactions, social media footprint and web history.

Within minutes, loans, ranging from Sh500 to Sh300,000, are deposited and are accessible on borrowers' phones.

Bankers reckon they are now turning to data analytics to support unsecured lending, especially small-ticket loans.

“In the banking industry now, there is a notable growth in unsecured lending as banks leverage on digital channels to extend unsecured facilities,” said Raimond Malonje, chief executive of Kenya Bankers Association.

“For every 10 unsecured facilities, there are up to 25 secured facilities in value. As such, there is no overreliance on secured loans in the industry.”

Provision of collateral in other markets has been used to ensure the borrower gets better loan terms, including pricing and tenure, but in Kenya collateral is a basic requirement to accessing credit.

Banks discount assets issued as collateral at different rates.

The discounting rate of land as collateral is estimated at 70 percent of property value to offer lenders adequate cover in the event of default and auction of the asset via forced sale.

The law bars auctioneers from selling property below 65 percent of their market value.

Logbooks are used when the value of a car is discounted at 70 percent debt while the more volatile assets like shares cover 50 percent of value.

Household goods such as television sets, fridges and sofa sets are accepted as security for short-term loans.

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