Banks shun tourism, agriculture as high risk sectors

Commercial banks view tourism and agriculture sectors as high-risk sector as they move to tighten their credit standards to control the high level of non-performing loans (NPLs), which grew by Sh7 billion in three months.

Central Bank's Credit Survey also showed lenders hardening their lending conditions to the energy, trade and financial services sectors.

According to the survey, a review of the lending terms to these sectors is informed by the escalating insecurity in the country, heightened political risk, fragile economic activities and low rains experienced during the second quarter (March to June) of this year.

The survey indicates the value of gross NPLs grew by 6.9 per cent within a three-month period to Sh101.7 billion in June 2014 from Sh95.1 billion in March 2014.

Central Bank notes that the spill-over effects of high lending interest rates and challenges in the business environment contributed to increase in NPLs. "However, banks continue to deploy enhanced appraisal standards to mitigate credit risk," said CBK.

In a damper to the financial sector, CBK warned that banks suffer huge loan defaults in the third quarter (July-September). This is due to rising insecurity, heightened political activity, high cost of living and inflation.

CBK says increased levels of non-performing loans (NPLs) will be witnessed in the Tourism, Personal/Household, Trade and Transport sectors