Banks to intensify credit collection in real estate as demand for credit rises

Banks up credit collection in real estate amid loans appetite. [iStockphoto]

Real estate is one of the sectors banks will target as they intensify their debt recovery efforts, according to details contained in the latest regulator’s report.

The credit recovery efforts come just months as banks also witnessed increased demand  for credit in the quarter ending December 2023.

The latest Credit Officer Survey by the Central Bank of Kenya (CBK) also shows building and construction as another sector that banks will intensify their recovery efforts this quarter. 

The Credit Officer Survey by CBK comes out quarterly and offers perception of banks, through the lenses of their credit officers, on how they perceive credit flow in 11 economic sectors.

These sectors are: real estate; building and construction; manufacturing; mining and quarrying, energy and water; trade; transport and communication; financial services; personal and household; agriculture and ; tourism, restaurant and hotels.

The survey notes that in the fourth quarter of 2023, the perceived demand for credit remained unchanged in seven economic sectors. 

“It increased in four sectors (manufacturing, trade, real estate, and personal and household),” reads the survey in part.  

The survey covered 38 commercial banks and one mortgage finance company.

According to the data, credit demand in real estate increased in the quarter ended December 2023 represented by 48 per cent compared to 42 per cent in the quarter ended September 2023.

“The perceived increased demand for credit in manufacturing, trade, real estate, and personal and household sectors is mainly attributed to
increased working capital requirements,” reads the survey. 

The working capital in real estate can be linked to inflation costs in the industry which have been largely driven by fuel and transport costs, according to the Kenya National Bureau of Standard(KNBS) Construction Input Price Indices. 

KNBS data showed cost of building materials went up 2.02 per cent compared in 2023 compared to previous year where it dropped by 1.47 per cent. 

For building and construction, represented by majority (57 per cent), the respondents noted that credit demand in this sector remained constant in the period. 

When it comes to credit standards - the criteria for approving loans - in the fourth quarter of 2023, this remained the same in nine economic sectors.

“Credit standards for real estate, and Personal and household sectors were tightened,” the survey states. 

The tightening perception in real estate was represented by a majority 50 per cent of respondents. Building and construction has 49 per cent who spoke of tightening and another 49 per cent whose perception was that the credit standards remained the same. 

The tightening of credit standards has also informed increased recovery efforts from real estate as documented in the survey. 

For the quarter ended March 31, 2024, the CBK document says, banks expect to intensify their credit recovery efforts in eight economic sectors and retain them in three sectors (mining and quarrying, energy and water, and financial services). 

“The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio,” the survey states.

“The main sectors that banks intend to intensify credit recovery efforts are: personal and household; trade, real estate; building and construction and;  manufacturing.”

Intensified recovery efforts in real estate sector represented by 76 per cent of respondents in the latest survey is a continuation of the situation in the previous quarter ended September 2023 where the figure stood at 73 per cent. 

Despite the tightening of credit standards and increased efforts to recover loans, the real estate is not among the sectors that banks expect a major increase in the level of Non Performing Loans (NPLs).

“Respondents indicated that the level of NPLs is expected to remain constant in nine economic sectors and increase in personal and household; and trade sectors,” the survey states.

It adds: “This is in tandem with expected increase in demand for credit in these sectors.”

According to the survey, the percentage of credit officers who expect NPLs in the in real estate to increase went up slightly to 34 per cent in the quarter ended December 2023 compared to 24 in the previous quarter ended September 2023.

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