Real estate takes up half of bank loans to private sector

Residential Apartment in Nairobi. FILE PHOTO | NMG

By CONSTANT MUNDA
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Summary

• Latest banking industry credit statistics by the Central Bank of Kenya indicate commercial banks issued Sh17.2 billion to real estate — 50.89 per cent of Sh33.80 billion additional net credit to businesses and homes.
• Net credit for the sector increased to Sh395.8 billion in June from Sh378.6 billion in March at the height of coronavirus-induced travel and trade shutdowns, the highest growth per sector in actual numbers.
• This was the largest funds approved by lenders to the sector in a single quarter since the March-June 2016 period when the sector got Sh36.4 billion in net loans.

Lending to real estate, including mortgages, accounted for half of new loans to the private sector in three months through June 2020 when the economy shrank for the first time in a decade, banking data showa.

Latest banking industry credit statistics by the Central Bank of Kenya indicate commercial banks issued Sh17.2 billion to real estate — 50.89 per cent of Sh33.80 billion additional net credit to businesses and homes.

Net credit for the sector increased to Sh395.8 billion in June from Sh378.6 billion in March at the height of coronavirus-induced travel and trade shutdowns, the highest growth per sector in actual numbers.

This was the largest funds approved by lenders to the sector in a single quarter since the March-June 2016 period when the sector got Sh36.4 billion in net loans.

The CBK in March lowered the ratio of cash that commercial banks are required to hold by a percentage point to 4.25 per cent of total deposits to support the sectors hardest hit by Covid restrictions, immediately releasing Sh35.2 billion additional liquidity.

“The real estate sector was struggling even before the pandemic and when it hit, it made such things as the purchasing power and disposable income of people in the sector worse,” Bernard Kiarie, managing partner at Algum Africa Capital LLP said via telephone. “It was one of the sector that needed support.”

Housing has been one of Kenya’s fastest growing sectors in the last decade, with returns from real estate outpacing equities and government securities. The property market has, however, suffered a decline in sales and rental prices in recent years, surveys by Kenya Bankers Association and consultancies such as Knight Frank and HassConsult have suggested.

The real estate sector was followed by transport and communication which got Sh15.8 billion in new credit to Sh200.7 billion at the end of June, according to CBK data.

Credit to firms in manufacturing sector grew Sh9.6 billion to Sh397.2 billion, while trade, which accounts for the lion’s share of private sector credit, got Sh7.4 billion additional loans to Sh489.2 billion in the three-month period.

Loans to private homes, on the other hand, expanded Sh5.6 billion to Sh445.1 billion between March and June, while agricultural sector’s credit rose Sh3.9 billion to Sh88.1 billion.

Economy that shrank by 5.7 percent in the three months to June when business shut and people stayed at home, pushing private sector activity into a downward mode.