Market News

All sectors fail to record rise in loan demand

Central Bank of Kenya head office in Nairobi. FILE PHOTO | NMG
Central Bank of Kenya head office in Nairobi. FILE PHOTO | NMG 

None of the 11 major economic sectors in Kenya recorded a notable rise in demand for loans in the third quarter of last year as political uncertainty affected business activity, a new report by the Central Bank of Kenya (CBK) says.

The CBK Third Quarter 2017 Commercial Bank Credit Officer report shows that as a result of the lower demand for credit, banks’ loan books grew at just 1.02 per cent quarter-on-quarter.

Economic sectors in which demand for credit remained unchanged included mining and quarrying, energy and water, financial services, agriculture, tourism, building and construction, trade, transport and communication and personal or household sectors.

In the real estate sector, majority of respondents (42 per cent) reported that credit demand fell, while in manufacturing, 38 per cent said it went up against a similar number who reported it was unchanged.


“The respondents indicated that none of the 11 sectors reported increased demand for credit….72 per cent of the respondents indicated that demand for credit decreased attributing it to political risk,” said the CBK in the report.

“Demand for credit in the real estate sector decreased with 42 per cent of the respondents indicating so… attributed to a challenging business environment. The manufacturing sector had an equal number of respondents who felt that demand for credit increased and remained constant.”

The quarterly survey polled senior credit officers in all 39 banks.

Higher defaults

Banks also tightened credit standards during the period in anticipation of possible higher defaults around the election period as businesses would struggle to raise revenue.

“Non-performing loans increased in the building and construction, trade, real estate, tourism, transport and communication, manufacturing and personal/household sectors.

This was attributed to a challenging business environment.

As a result of the lower demand and tighter standards, the quarter saw the private sector credit growth hit a new low of 1.7 per cent in September.

Lenders were also reluctant to lend due to the rate cap, which they say has made it difficult for them to price in risk, especially of small firms.

This has also affected bank sector profits. In the nine months to September, lenders saw their net earnings fall by 9.4 per cent to Sh76.6 billion.