By Kepha Muiruri For Citizen Digital
Local banks are expected to remain jittery on the issuance of new loans as the country enters the election cycle later this year.
According to a new 2022 outlook report by EFG Hermes Research, the expected moderate loan growth is expected to be rooted in the non-approval of risk-pricing models and caution on the ballot.
“We do not expect risk-pricing models to be approved before the Presidential Elections and banks will likely become more cautious ahead of the elections too,” noted the report.
While banks have been gearing to roll out risk-based pricing on new loans and have held discussions with the Central Bank of Kenya (CBK) on approvals, the reserve bank has previously stated that the implementation does not require any signing off.
Private sector credit growth has remained dismal since the era of interest rate capping and has been constrained recently by the stay of the COVID-19 pandemic.
Growth in private credit is yet to top double figures since before the enactment of interest rates held in September of 2016.
Recent data from the CBK has however shown a recovery in credit with private sector credit growth at 7.8 per cent in October.
The sectors of manufacturing, transport & communication, business services and consumer durables have been the highest takers of recent credit lines.
“The number of loan applications remained strong in October reflecting improved demand with increased economic activities. Progress was noted with regard to lending under the Credit Guarantee Scheme operationalised in October 2020,” the CBK stated on November 29.
Should commercial banks keep the handbrake on in terms of new lending, the government is likely to be the beneficiary with the lenders having previously turned to safe-haven investments including the purchase of government securities.
Banks preference of the Treasury instruments has for instance seen the government stay ahead of its domestic borrowing program in the continuing 2021-2022 fiscal year.
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