The CBK’s Credit Officer Survey for the quarter ended September 30, 2015 says banks indicated that they intend to intensify credit recovery efforts so as to mitigate the likely increase in Non-Performing Loans (NPLs) due to increase in interest rates and to improve their overall quality of asset portfolio.
Most banks expect the levels of non-performing loans to generally remain constant in eight of the 11 economic sectors. However, banks foresee increasing NPLs in the personal/household, building and construction, manufacturing, real estate, agriculture and trade sectors.
“This increase in NPLs in the building and construction, manufacturing, real estate and trade maybe attribute to increased interest rates, volatile exchange rates, delayed contractor payments by the National and County Governments.”
“Other respondents attribute increased NPLs in the Agriculture sector to adverse weather conditions, as a result of the predicted El-Niño rains which may affect expected yields. Other respondents envisioned that due to depreciating Kenya Shilling, importers will probably, reduce their merchandise or raw materials importation resulting in reduction in profit which would lead to rise in NPLs,” the report states.
The banks expect to intensify their credit recovery efforts in building and construction, personal/household, trade, real estate, transport and communication, tourism and manufacturing sectors.
Credit recovery efforts towards agriculture, mining and quarrying, energy and water and financial service sectors are expected to generally remain constant.
Compared to the second quarter of 2015, Kenyan banks in the third quarter indicated that demand for credit increased in three economic sectors that include manufacturing, mining and energy and water which went up with a margin of 8 percent, 5 percent and 3 percent respectively.
Available investment opportunities were cited as the main factor that led to increased demand for credit.
Demand for credit decreased in four economic sectors namely; building and construction, trade, transport and communication and real estate attributable to cost of borrowing, depreciation of the shilling against the dollar, security risks associated with the terror attacks, recent upward review of Central Bank Rate (CBR) and Kenya Banks Reference Rate (KBRR).
Similar to the last two quarters, the survey established that credit standards generally remained unchanged for all economic sectors over the three months to September 30, 2015.
The ratio for total loans to total assets of the banking sector for the quarter ended September 30, 2015 was 62.68 percent a slight increase from 61.38 percent reported in September 2014.
Loans and advances in Banks grew by 6.9 percent during the quarter under review. This was mainly driven by loans distributed to personal and household loans, trade, real estate and transport and communication respectively.
However, with increasing use of mobile lending across the sector, loan size continued to shrink to Sh330,655 versus Sh359,672 in the previous quarter.