Financial institutions intend to intensify loan recovery efforts in the first quarter of this year due to increased expenditure by customers during the December/January festivities.
According to the Central Bank of Kenya (CBK), the increased expenditures by customers triggered a spike in non-performing loans. In a report titled Credit Officer Survey, released last Friday, CBK noted that banks foresee increasing non-performing loans (NPLs) in energy and water, manufacturing, real estate and household sectors.
“The general drop in income may also affect traders, contractors and employed persons as well as delayed salaries to teachers due to industrial unrest, thus increasing NPLs in the personal/household sectors,” the report added.
A non-performing loan is either in default or close to being one. CBK also attributed increased NPLs to delayed payments to contractors by the government and poor harvest occasioned by failed rains. “Cost of farming is also not commensurate to sale proceeds from farm produce and most farmers are experiencing losses instead of gains,” said the bank in the survey of the banking sector last year.
CBK expects lending in the first quarter to various sectors not to increase or reduce. The survey says available investment opportunities, cost of borrowing, the Kenya Bankers Reference Rate and retention of Central Bank rate at 8.5 per cent as the main factors that lead to increased demand for credit last year.
The survey indicates that the demand for credit increased in five sectors namely trade, personal/household, building and construction, real estate, transport and communication. In the last quarter of last year, highest growth in demand for credit was witnessed in tourism, personal/household, transport and communication, agriculture and trade sectors by 15, 12, 10 and 6 per cent respectively.
According to the survey, the main factors that caused the demand for credit to increase were internal financing, loans from other banks, drop in cost of borrowing, increased available investment opportunities as a result of stable macroeconomic environment.
Last year, credit recovery efforts were intensified in all economic sectors – agriculture, manufacturing, energy, water, real estate, household, mining, transport, communication, tourism and hotel, trade and financial services.
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