Kenyans take more loans despite high lending rates

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Kenyans are borrowing more money from commercial banks despite high lending charges. The rates that stand at an average 16 percent have been blamed for slow down of economic activities and rising bad loans, but they have not dissuaded Kenyans from borrowing cash from the financial institutions, according to a survey by the Central Bank of Kenya (CBK) received on Thursday. loans
In the survey for the first quarter received Thursday, CBK showed that banks gross loans increased by 3.5 percent from 21 billion U.S. dollars in December 2014 to 22 billion dollars at the end of March.
The increased demand for credit was recorded mainly in five economic sectors namely trade, building and construction, personal/ household, transport and agriculture.
Six economic sectors led by mining, energy, financial services, tourism, manufacturing and real estate recorded unchanged demand for credit.
“The number of banks that reported increased demand for credit from the agricultural and building and construction sectors went up by 7 percent and 5 percent whereas demand for credit in the tourism sector decreased by 17 percent as compared to the previous quarter,” noted the CBK.
The regulator attributed the huge fall of demand for credit in the tourism sector to travel advisories and recent spate of insecurity in the country.
On the other hand, increased demand for loans in the agriculture sector was triggered by the expected onset of rains as farmers began to prepare for planting.
Other things that made Kenyans borrow more, according to the survey, was reduction of Kenya Banks Reference Rate, a loan- pricing formula introduced by CBK which dropped from 9.13 percent to 8.5 percent.
“There was also increased investment opportunities and retention of CBK rate at 8.5 percent, which led to increased demand for credit,” it said.
While the average lending rate is 16 percent, some banks are charging up to 22 percent.
Analysts note that the lending rates should be lower than they are currently if banks adhered to the new-loan pricing formula.
High lending rates have been blamed for rise in non-performing loans (NPL) in the East African nation, which stand at 1 billion dollars.
Commercial banks expect the non-performing loans to increase in the second quarter, according to the survey.
The bad loans would rise particularly in the trade, transport and communication, mining and quarrying and tourism sectors.
“The current spate of insecurity in the country, travel advisories and the heightened political activity may support the expected increase in non-performing loans in the tourism sector. The expected increase in NPLs in the mining and quarrying sector may be attributed to the on-going reforms in the sector.”
During the period in review, cumulative pre-tax profits for banks stood at 393 million dollars, up from 355 million dollars. Enditem

Source: Xinhua

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