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Njoroge is however optimistic that the financial market will weather the storm/FILE

Kenya

Financial sector investors should accept lower returns – CBK

Njoroge is however optimistic that the financial market will weather the storm/FILE

NAIROBI, Kenya, Jul 4 – Central Bank of Kenya (CBK) Governor Patrick Njoroge has cautioned investors in the financial industry to be prepared to accept lower returns.

The statement comes even as interest rates capping continues to bite into banks’ revenues.

Njoroge is however optimistic that the financial market will weather the storm.

He called on banks to improve their transparency in credit, adding that Kenya needs to move to risk based pricing of credit.

“Our financial sector needs to be even more resilient. There needs to be improved transparency about credit,” he said.

Global Rating Agency Moodys reported that Non-Performing Loans are expected to be on the rise in 2018.

In their new report released on Tuesday the agency attributes this to delayed impact of challenges experienced last year but they will slow down as the economy improves and as banks step up their loan-loss recovery efforts.

Kenya’s economy is resilient because it’s highly diversified, has highly diversified trade partners, is regionally oriented and that is highly private sector driven.

By the end of 2017, Non-Performing Loans reached 10.1 per cent of total loans, up from 6 per cent at the end of 2015.

According to the report Kenya’s private sector, credit growth is expected to remain below 5 per cent in 2018 even as it stood at just 2.4 per cent in December 2017.

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The agency says despite Kenya’s economic rebound that will help banks to expand loan growth over the next 12-18 months, it currently remains constrained by the government cap on lending rates.

The government has however indicated plans to review the interest rate capping that was administered in 2016.

By the end of 2017, Non-Performing Loans reached 10.1 per cent of total loans, up from 6 per cent at the end of 2015.

“Operating conditions are improving in Kenya, with real GDP growth forecast to rise to 5.6percent this year as business confidence returns and agriculture recovers following last year’s drought,” said Christos Theofilou, Moody’s Vice President and Senior Analyst. “We expect credit growth to also rebound but remain low due to tighter bank lending criteria.”

The agency expects the banks to maintain an average return on assets close to 3.2 per cent from 2.67 per cent in December 2017.

“Better operating conditions, strong capital and funding profiles will shield Kenyan banks despite high asset risks,” the firm notes.

Kenyan banks’ profitability is one of the highest regionally and globally, providing a strong recurring buffer against high asset risk.

According to Moodys’ Kenyan banks’ sovereign exposure will remain high over the coming quarters, given the sovereign’s strong appetite for debt and sluggish private-sector loan growth.

“The rating agency also expects Kenyan banks to maintain their capital buffers and deposit-funded profile – key credit strengths – over the next 12-18 months,” reads the report released Tuesday.

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