Energy investments spur credit growth in second quarter

The energy and water sector continued to drive credit growth over the past quarter affirming a trend maintained during the last one year.

Fresh Central Bank of Kenya (CBK) data shows the sector expanded credit uptake by 19.1 per cent between March and June in a period total credit rose a paltry 5.3 per cent.

The sector has registered 72.3 per cent since June last year as the banking credit grew 23 per cent.

The huge growth was partly due to credit issued to subcontractors in the ongoing energy development schemes ranging from the oil drilling to the geothermal projects in Olkaria.

The sector may also remain the largest taker in the next few years as Kenya Electricity Generating Company (KenGen) seeks to finance its Sh425 billion undertaking in order to bring into the national grid 5,000 megawatts by 2018.

The State has quickened power production from geothermal sources in the Rift Valley in the past few years. Geothermal capacity stood at 236.5 megawatts at the end of last year from only 158 megawatts five years ago, showing that it has nearly doubled.

The second largest taker of credit in terms of quarter-on-quarter growth was mining and quarrying. In the half year, the sector saw a 25.2 per cent.

“When you look at the bank lending closely you notice it also grows with the sectors that are growing. We have noted that there are many subcontractors who are keen on taking up bank loans to provide services or materials to the large foreign contractors,” said Geoffrey Maina, a research analyst with Old Mutual Securities.

The mining and quarrying lending is being driven by such developments as the extraction of titanium in Kwale as well as gold mining in places such as Migori. Titanium production began early this year while Goldplat began mining gold at Migori’s Kilimapesa area in January 2012.

In May, Baringo County signed a Sh6 billion deal with a Chinese firm, Chuansian International, to extract diatomite and create more than 300 new jobs. Prospecting in recent years has also led to new finds with niobium, a rare mineral in Kwale, being one of the latest.

Mr Maina said local banks do not have capacity to fund the large, mainly foreign, contractors though. In the quarter ending June, the third fastest growth of 13.3 per cent was in financial services.

Fall in interest rates is one of the major reasons for the increase in credit. In January, lending rates stood at about 17 per cent, but by May this was at 15.6 per cent. Credit taken by corporate entities was relatively cheaper thereby encouraging uptake of larger amounts.

According to a Treasury-appointed group, the corporates also enjoy a lower spread – difference in lending versus deposit rates – of 6.5 per cent compared to the retail borrowers who had a weighty 16.6 per cent as at December 2013.

An analysis of the June 2014 banks results by Standard Investment bank noted that the personal loans still accounted for the largest portion of loans, despite the marginal growth relative to other sectors during the period.

“Sector loan growth was driven by increased lending to energy, mining and financial services sectors – 19.1 per cent, 14 per cent and 13.3 per cent quarter-on-quarter respectively. Lending to private households, the largest category, accounted for 24.8 per cent of total banking sector loans,” said SIB.