Low demand for fresh loans hits mortgage lenders

• A survey conducted by the Central Bank of Kenya in June shows that nearly half (45 per cent) of top credit officers in the banking sector expect demand for home loans to decline, compared to 43 per cent in March.
• On construction development loans, 37 per cent of the bankers expect a slowdown on credit appetite from developers, slightly lower than 38 per cent in the March survey.
• The findings reveal a steady downward trend for both construction and housing — the twin sectors that have taken the biggest hit from high interest rates since last year, after recording an un-interrupted growth since 2000.
• CBK’s survey reveals that credit applications for building and construction sector dropped by nearly half, from 800 in the first quarter to 428 in the second period ending June.
• Home loan applications dropped by a quarter in the corresponding periods, from 611 in quarter ending March to 402.

Mortgage lenders are pessimistic about prospects of higher appetite for loans from developers and home buyers, a pointer to depressed activity in the construction sector, which has been a major driver of economic growth in the past decade.

A survey conducted by the Central Bank of Kenya in June shows that nearly half (45 per cent) of top credit officers in the banking sector expect demand for home loans to decline, compared to 43 per cent in March.

On construction development loans, 37 per cent of the bankers expect a slowdown on credit appetite from developers, slightly lower than 38 per cent in the March survey.

The findings reveal a steady downward trend for both construction and housing — the twin sectors that have taken the biggest hit from high interest rates since last year, after recording an un-interrupted growth since 2000.

Both the CBK and the lenders have attributed the low credit appetite to the high interest rate environment that has forced some developers to shelf their building plans while pushing potential home buyers to postpone property acquisition plans.

Frank Ireri, the managing director of Housing Finance, says that the lacklustre view held by the lenders is linked to the high cost of money.

Mr Ireri said in an interview with the Business Daily that the recent adjustment of the policy lending rate has had little effect on making credit affordable enough to spur renewed interest in the housing and construction sectors.

“The last 1.5 per cent cut did not have material impact as corporate deposit rates still remain relatively high,” said Mr Ireri.

Average interest on bank loans is currently at 20.15 per cent, up from 14.5 per cent until the third quarter of last year as the CBK took a tighter monetary stance to stabilise the shilling and help the government tackle inflation.

READ: High interest rates hit real estate sector hard in quarter one

Already, the number of loan applications for developers and home buyers has confirmed a trend over the first two quarters of the year, indicating that the third quarter could be even worse.

CBK’s survey reveals that credit applications for building and construction sector dropped by nearly half, from 800 in the first quarter to 428 in the second period ending June.

Home loan applications dropped by a quarter in the corresponding periods, from 611 in quarter ending March to 402.

Loans that are eventually extended to either sectors are much fewer, however, compared initial applications considering the vetting done on the individual credit requisitions.

Joram Kiarie, the head of mortgage business at Kenya Commercial Bank, says that appetite for credit had been dealt a major blow this year owing to the high cost of capital with most potential borrowers either suspending their plans or opting to downscale on their initial projects.