The loans advanced by commercial banks are edging towards Sh1 trillion or nearly half the value of the economy, highlighting a growing role of debt in financing business.
About 12 banks that have so far reported their first quarter results increased loans to customers by Sh25 billion, raising the total credit to Sh969 billion, according to industry figures by the Central Bank of Kenya (CBK).
With 32 banks yet to announce their performance in the first three months of the year— including big lenders Barclays and Standard Chartered— analysts see the value of loans as at the end of March touching the Sh1 trillion mark.
Gross loans by banks stood at Sh944 billion in January.
“It generally indicates increasing leverage , showing willingness by investors to take risk,” said Robert Bunyi, chief executive of financial consulting firm Mavuno Capital.
Among banks that have reported their first quarter results, Equity has registered the largest growth in its loan book, rising by Sh7.4 billion while KCB has disbursed Sh6.8 billion, Co-operative Bank advanced Sh4.9 billion and the Diamond Trust Bank lent Sh3.6 billion.
Though most analyst expect banks to continue pushing money into the economy, consistent economic growth and political stability are seen as key factors in ensuring recovery of the loans.
Mr Bunyi said Kenya was in the early stages of development and thus the total loan book to the country’s GDP ratio shows the economy is still under-leveraged, while banks face pressure to lend more loans to maintain growth of their bottom lines.
“What I see is banks issuing more rights issues so as to increase their capital as they need to lend more,” said Mr Bunyi.
Francis Mwangi, a research analyst with African Alliance, said the banks had a lot of liquidity with their deposit to loans ratio at about 67 per cent.
He said a deposit to loan ratio of about 80-85 per cent is achievable if the lenders are aggressive in selling credit.
Recently banks have been pushing their SME and mortgage loans in order to grow their portfolios.
KCB and Stanchart re-launched their SME lending products recently while Equity Bank has opened a mortgage arm.
CFC Stanbic recently launched a 100 per cent financing offer for their mortgage lending while Barclays Bank reduced their mortgage rates to 11.9 per cent.
Last year, the banks’ deposits grew in tandem with the loan book both at 24 per cent.
Customer deposit base increased to Sh1,237 billion in 2010 from Sh997 billion in 2009 while net advances to customers increased to Sh876 billion in 2010 from Sh706 billion in 2009.
Credit to private sector in 2010 grew by 20.3 per cent driven by growth in the real estate with financing for the sector growing 87.1 per cent to Sh98.9 billion from Sh52.8 billion.
Timothy Gitonga, the head of business banking at NIC Bank believes that the market will continue to be well leveraged and stable so long as the banks continued to lend out on the basis of ability to repay and not to rely on security.
“The western world had a credit crunch as they over leveraged on the security and as long as the banks continue working with the cash flow analysis we are safe” said Mr Gitonga.
He however noted that the recent increase in cost of living and fuel prices was not good as it resulted in less disposable income which could lead to default.