Banks raise concerns over high rate of loan default by Kenyans
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Kenyan banks to reduce the amount of loans given out over a high rate of default as a result of tough economic times
Kenyan banks to reduce the amount of loans given out over a high rate of default as a result of tough economic times.
Kenyans seeking credit from financial institutions need to be poised for tough economic times as the majority of banks revealed they would be cautious in advancing loans.
The Central Bank of Kenya (CBK) disclosed this in the Market Perceptions Survey, which was made public on February 9.
Thirteen microfinance banks and thirty-two commercial banks were polled for the research, and most of them said they would exercise caution when lending to the private sector.
“79 percent of the respondents expected economic uncertainty occasioned by the high cost of living to drive banks to become more cautious in lending to the private sector,” the survey noted.
The banks remarked that this was inevitable to minimize the risk of loan default.
It was reported that the high cost of doing business due to expensive foreign currency, low business activities due to multiple taxes, as well as the high-interest rates would dampen private sector credit growth in 2024.
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CBK conducted the survey to determine from commercial banks by what percentage they expected to grow credit to the private sector by the end of December 2024 compared with the end of December 2023.
Despite the apprehension in lending loans, the banks expected stable growth in private sector credit in 2024.
According to the Market Perception Survey, 71 percent of banks expected more Kenyans to apply for financial aid in 2024.
This is partly due to an increase in demand for short-term credit facilities due to increased requirements for working capital.
The high cost of living has led to high operational costs which will further drive more Kenyans to commercial banks seeking favourable loan terms.
Other factors that will drive more Kenyans to seek loan facilities include an increase in commodity and raw material prices, depreciation of the local currency, and spirited efforts to ensure that businesses stay afloat.
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