Sh22bn stimulus package set to lift banks’ business

Commercial banks expect the release of a Sh22 billion stimulus package to stir up more quality lending opportunities in the private sector.

The roll out of construction projects in all constituencies will raise demand for facilities that help vendors vie for and fulfil contracts such as bid bonds, bank guarantees, letters of credit and LPO financing.

“Once the funds are released, we should see more overdraft facilities, bank guarantees and the leverage of loans,” analysts from the CFC Stanbic research desk say.

Lending based on government contracts gives the banks more comfort because the risk of non-payment is virtually inexistent.

Data from the Central Bank of Kenya shows that lending has increased by 12.1 per cent, from Sh691 billion loaned out in December 2010 to Sh775 billion loaned in January but analysts reckon that more can be done.

Analysts anticipate more lending is in the pipeline due to the increase in banks’ asset bases and the fact that lending to the private sector still accounts for the lion’s share in lending (53 per cent).

The banking sector aggregate balance sheet expanded by 18.0 per cent from Sh1.178 billion in December 2010 to Sh1.39 billion in January 2010. There was also an increase in liquidity.

Commercial banks which also heavily trade in bonds and treasury bills are facing stiffer competition from local and foreign institutions that have moved their money from equities to bonds.

The result has been increased competition for government bonds, especially the infrastructure bonds, and all three bonds have been oversubscribed leaving banks with excess cash.

So far, only Sh3.25 billion or 14.8 per cent of the money has been released and the sluggish pace is the result of tedious and complex procedures inherent in the release of government funds due to the high risk of corruption.

The House Committee on the Constituency Development, the team that oversees spending on such projects, has already summoned senior government officials to help chart out ways to cut government red tape.