Kenya’s building and construction and real estate sectors are facing rough times as bad loans from banks soar.
According to an industry status report from Central Bank of Kenya (CBK) received Wednesday, the two fast-growing sectors in the East African nation experienced the highest rise in non- performing loans (NPL) during the first quarter of the year .
“The sectors which experienced the highest increase in NPLs between January to March were building and construction and real estate whose NPLs increased by 28 percent and 20.4 percent respectively,” said the CBK.
The real estate sector saw bad loans during the period rise from 129 million U.S. dollars to 155 million dollars. However, it is the building and construction sector that accumulated more bad loans, which surged from 103 million dollars to 134 million dollars.
The regulator blamed the rise in bad loans to high lending rates offered by commercial banks, which stand at an average of 16 percent.
“The spill-over effects of high lending interest rates and challenges in the business environment in the first quarter contributed to the increased NPLs. However, banks continue to deploy enhanced credit appraisal standards to mitigate credit risk, ” said the apex bank.
Kenya’s construction industry, according to the Economic Survey 2015 released last month, maintained a rapid expansion last year, mainly supported by robust growth in property development, a vibrant real estate sector and the ongoing mega infrastructure projects. Consequently, the sector’s gross value added increased by 13.1 percent from 5.8 percent in 2013.
“The growth in real estate and the property sector was mainly driven by demand for new office space and urban housing,” noted Kenya National Bureau of Statistics, the drafters of the survey.
Kenya is undertaking several infrastructural projects in the transport and energy sectors, and among those that contributed to the growth of the construction sector were standard gauge railway, expansion of roads, Mombasa port and several airports.
The survey noted that the biggest beneficiaries of the boom were commercial banks, where loans and advances to construction and real estate sectors grew by 13.6 and 32.4 percent respectively in 2014.
The faster growth of the bad loans in the construction sector saw the value of gross non-performing loans in the first quarter increase by 9.4 percent from 1.13 billion dollars in December 2014 to 1.23 billion dollars in March.
Other sectors with high non-performing loans are trade at 305 million dollars and household at 299 million dollars. The least are financial services and mining and quarry at 14 million.
Meanwhile, the banking gross loans and advances increased from 21 billion dollars in December last year to 22 billion dollars in March, translating to a growth of 3.6 per cent.
“The Kenyan banking sector is expected to remain stable and resilient in the remainder of 2015. The capital buffer requirement that took effect from January will enhance the resilience of the banking sector as banks explore new opportunities in Kenya and beyond,” concluded the bank. Enditem