Capital Markets

Credit demand seen rising as businesses recover from Covid hit

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Summary

  • A report by Egypt-based investment bank, EFG Hermes said there is room for credit deepening in Kenya, alongside other countries such as Egypt, Pakistan and Nigeria.
  • The investment bank said the growth could, however be affected by Central Bank of Kenya (CBK) regulatory policies and higher provisioning costs that may make the lenders take cautious approach in extending new credit.
  • Analysts have projected that CBK is likely to approve the risk-based pricing model that would see the cost of loans jump by one to 1.5 percentage points.

Demand for credit in the market is expected to rise this year as individuals and businesses seek to weather financial difficulties, despite an expected rise in the cost of loans and a cautious stance adopted by lenders.

A report by Egypt-based investment bank, EFG Hermes said there is room for credit deepening in Kenya, alongside other countries such as Egypt, Pakistan and Nigeria.

The investment bank said the growth could, however be affected by Central Bank of Kenya (CBK) regulatory policies and higher provisioning costs that may make the lenders take cautious approach in extending new credit.

Analysts have projected that CBK is likely to approve the risk-based pricing model that would see the cost of loans jump by one to 1.5 percentage points.

“Nigeria, Pakistan, Egypt, Kenya and Bangladesh combine relatively low credit penetration with five-year stagnation in private sector credit-to-GDP ratios – they are ripe for expansion of credit in the economy if they can overcome structural impediments,” the investment bank said.

“Pakistan and Kenya may be best placed for credit expansion in 2021, the latter contingent on Central Bank approval of risk models.’’

Banks had started lending to the private sector at an increasing pace before the Covid-19 pandemic hit the economy, but the momentum has slowed down.

Private sector credit growth stood at 8.39 percent in the 12-months to November 2020, from 7.27 percent in the same month in 2019, but was lower than the 2020 high of 9.09 percent recorded in April.

The question of whether the banks will shore up the lending remains in the air however, especially on fears of bad debts amidst a heating political environment.