Posted on September, 11, 2017 at 10:34 am
It is now harder to borrow from banks to finance agricultural ventures in Kenya than it was between January and March this year, a survey released on Wednesday reveals. According to the credit survey conducted by Central Bank of Kenya (CBK), for the second quarter of 2017 ending June 30, banks tightening lending guidelines had increased to 14 from 12 in the first quarter.
The survey found that 33 banks had tightened credit standards to the sector compared to 29 per cent in the first quarter. “The prolonged drought being experienced in the country was cited as the main driving factor for tightening of credit standards,” said CBK in the survey report.
A slowdown in economic activity saw banks make borrowing harder for businesses or individuals operating in the transport and communication sectors. The survey found that 17 banks, or 40 per cent, had tightened credit standards in the sector compared to 11 banks or 26 per cent in the first quarter. But lending to manufacturing had been made easier with four banks easing their credit standards to the sector.
Another four banks eased their lending standards to businesses in energy and water sectors while six banks eased for the trade sector. According to the report, real estate, construction, trade and tourism recorded the highest increase in bad loans.
Sixteen banks said bad loans from real estate firms had increased while 15 banks reported an increase in defaults from trade and construction. Another 14 banks said non-performing loans had increased in the tourism sector.
A majority of the banks or 42 per cent, according to the survey, expect that the elections will drive up non-performing loans. “Forty-two per cent of the respondents expect the level of non-performing loans to rise in the third quarter of 2017.
This is because of the industry’s perception of increased political risk in light of the General Election,” say the report. However, banks see efforts to collect the loans intensifying in the third quarter ending September 30. “For the quarter ending September 30, banks predict that credit recovery efforts will be intensified in eight of the eleven sectors.
The banks intend to allocate more resources on monitoring and recovery of loans as well as use of external parties in the recovery process,” says the report. Among the sectors that banks efforts at loans recovery will be intensified are tourism and agriculture which have been hit by drought and cash flow fluctuations.
Banks will also intensify collections from construction sector which is expected to receive contractor payments from the government, in the third quarter of the year. At the same time, there will be intensified recovery efforts in manufacturing, trade, transport, personal/household, real estate, and financial services sectors as banks seek to improve the quality of their asset portfolio. “This is in line with the banks expectations that loan defaults in these sectors will rise during second quarter of 2017 due to slowdown in economic activity,” CBK said in the report.
Source: MediaMax Network