More people turned to loans to fund Christmas, report reveals

More individuals and households took up credit from banks over the festive season, according to a Central Bank of Kenya survey.

The heightened political activity towards the end of last year, however, saw demand for credit among real estate developers decline, according to the CBK's 'Commercial Credit Officer’s Survey' for between October and December last year. “Demand for credit in the building and construction sector decreased, with 32 per cent of the respondents indicating so. This may be attributed to a challenging business environment,” said CBK.

“Demand for credit, on the other hand, increased in the personal/household sector. This increase was attributed to increased demand for credit due to the festive season in December 2017.”

The prolonged electioneering period saw the economy slow down. The property market was one of the most affected sectors, with most developers suspending any new projects due to the uncertainty created by the political heat.

Heightened risk

For example, between August and October last year, the Nairobi County government did not approve any building plan.

Most respondents (76 per cent), CBK said, blamed the drop in demand on heightened political risk. However, there was a slight increase in gross loans to Sh2.45 trillion in December compared to Sh2.39 trillion in September.

The increase was attributable to an increase in gross loans in the manufacturing, trade, personal/household, energy and water, building and construction, financial services, tourism, transport and communication, and mining and quarrying sectors.

“The ratio of gross non-performing loans to gross loans increased from 10.44 per cent in September 2017 to 10.56 per cent in December 2017. This was attributed to a slowdown in business activities,” said the report. Lenders were also divided on the impact of the law on interest rate cap, but they agreed that small businesses would be affected by the law.

“Majority of the commercial banks indicated that interest rate capping negatively affected their lending to SMEs,” said the report.