Banks tighten credit to the real estate and construction sectors

Banks have tightened credit standards on real estate and construction lending, reacting to a rise in non-performing loans in the two sectors that have been badly affected by the slowdown of the economy.

The fourth quarter Central Bank of Kenya credit officers survey (that polled all 41 banks) shows 42 per cent of respondents tightened credit standards for the real estate sector, and 45 per cent for construction.

The real estate sector endured a tough operating environment in 2017, with the HassConsult index showing house sale asking prices dropped by 4.1 per cent during the year and rental asking prices were down by 3.9 per cent.

Overall, banks became more cautious when lending, the CBK said, due to political uncertainty which weighed on the performance of the economy.

“Uncertain business environment due to the prolonged electioneering period affected most businesses, making commercial banks to exercise caution in extending credit facilities,” said CBK in the report released last week.

The real estate sector also reported the highest rise in non-performing loans in the last quarter alongside the personal/household segment, with 31 per cent of respondents saying this was the case.

READ: Bad bank loans increase Sh47bn to touch Sh260bn

Other broad sectors covered in the survey include agriculture, manufacturing, mining and quarrying, energy and water, trade, tourism and hospitality, transport and communications, and financial services.

The problems affecting real estate have filtered through to mortgage lender HF Group #ticker:HFCK, which saw its net profit for the nine months to September 2017 fall by 81 per cent to Sh159.7 million.

Subsequently, the lender has issued a profit warning saying full year 2017 earnings will be at least 25 per cent lower than those reported for the year ended December 31, 2016.

Last week, HF Group managing director Frank Ireri said appetite for long-term mortgages has fallen.