Most banks in Kenya hold interest rates constant

August 9, 2016
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Dubbed Credit Officer Survey, the survey reveals that 23 percent of banks decreased their interest rates, with 8 percent increasing their rates/FILE
Dubbed Credit Officer Survey, the survey reveals that 23 percent of banks decreased their interest rates, with 8 percent increasing their rates/FILE

, NAIROBI, Kenya, Aug 9 – A newly released survey by the Central Bank of Kenya reveals that 69 percent of Kenyan banks held their interest rates constant during the quarter ended March 31, 2016.

Dubbed Credit Officer Survey, the survey reveals that 23 percent of banks decreased their interest rates, with 8 percent increasing their rates.

“Those whose rates remained constant attributed their decision to a stable economic environment while those that increased faulted increased cost of funding,” reads the survey in part.

The survey targeted senior credit officers of all 39 operational commercial banks and 1 mortgage finance company and excluded Charterhouse Bank Ltd, Imperial Bank Ltd and Chase Bank Ltd.

The drive to carry out the survey was based on the fact that credit risk is the single largest factor affecting the soundness of financial institutions and the financial system as a whole. Lending is after all, the principal business for banks.

There was also a significant increase in non-performing loans (NPLs) in the personal/household, building and construction sectors. CBK attributes the rise in the personal/household – at 35 percent- sector, to self-employed borrowers’ inability to service debt due to low business activity.

“Increase in NPLs in the Building and Construction sector would be due to delays in payment of contractors mainly by the national and county government.”

Overall, the demand for credit remained constant in six economic sectors while it increased in four. CBK attributes the increase in the demand to favourable macroeconomic environment and reduced cost of inputs such as petroleum products and electricity. On the other hand, the growth in the building and construction sector was linked to the ongoing Standard Gauge Railway construction works and construction of roads.

The ratio for total loans to total assets for the quarter was 65.54 percent which was a slight increase from 61.31 percent reported in December 2015.

– A look at the sector in general –

Growth was generally registered in the sector in the quarter under review. For instance, deposits increased by 2.81 percent from Sh2.49 trillion in December 2015 to Sh2.56 trillion in March 2016. CBK ascribes the growth in deposit base to being supported by branch expansion, use of technological innovations for deposit mobilization and the agency banking model.

Elsewhere, gross loans increased by 9.7 percent from Sh2.16 trillion in December 2015 to Sh2.37 trillion in March 2016. The growth in loans was attributed to increased demand for credit by the various economic sectors.

At the same time, the aggregate balance sheet increased by 2.29 percent from Sh3.49 trillion in December 2015 to Sh3.57 trillion in March 2016.

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