Banks expect increase in lending before December

More Kenyans are approaching banks for loans, although a majority of them are being turned away. [Wilberforce Okwiri, Standard]

 

Banks are optimistic about an upturn in borrowing before the year ends, reversing the slowdown in credit growth in the country.

According to a new survey by the Central Bank of Kenya (CBK), 10 small lenders believe Kenyans will borrow more, while nine of their counterparts expect the levels of credit to remain the same.

Only one small lender believes credit will slump further this year.

Out of the eight lenders that control the sector in the country, five believe credit will grow, two expect lending to remain flat while one sees a slump before the end of the year.

Four mid-tier banks also believe credit will grow while six of their peers expect it to remain the same and one medium-sized lender believes it will slow down.

“Respondents expect private sector credit growth to be supported by the fairly positive economic outlook and lower yields on treasury instruments,” said CBK in its July market survey.

Lending has slowed down beyond Central Bank’s expectations, growing at a record level low of 2.1 per cent in May this year in the wake of a new law capping interest rates.

“The banks attribute this trend to the prevailing wait-and-see attitude by the private sector and the slowed economic activities on account of the elections, in addition to increase in non-performing loans,” said the regulator.

CBK had expected credit growth to swing back by January after reducing the benchmark rate - the Central Bank Rate (CBR) - in September.

CBK had projected that loans would double from 5.3 per cent in November to 10.7 per cent in January, but instead the credit growth continued into a depressed slump, partly because of the introduction of interest rates cap.

Growth of private sector credit has stayed below CBK targets for the past 16 months whereas it is usually above the targets. The regulator’s survey shows a modest private sector credit growth, which is a decline from the previous survey’s expectations.

This was on account of the expected slowdown of private sector investment in an election year and effects of interest rate capping legislation.

Demand, however, remained high at 22 per cent, according to the July survey, an indication that Kenyans are approaching more banks for loans despite being turned away.