Data from the Central Bank of Kenya (CBK) shows that banks lost 657,000 loan accounts last year, adding to the 695,000 loan accounts lost in 2016.
The value of gross loans disbursed followed a similar trend having dipped by Sh114 billion to Sh2.15 trillion last year.
This means that thousands of prospective borrowers were unable to access fresh loans from banks even as thousands of maturing loans were paid without successful applications for new ones.
The number of bank loan accounts dropped by 1.35 million to 7.15 million in the past couple of years, reflecting the slowdown in disbursement of loans in the wake of the September 2016 capping of interest rates, latest industry data shows.
Data from the Central Bank of Kenya (CBK) shows that banks lost 657,000 loan accounts last year, adding to the 695,000 loan accounts lost in 2016. The value of gross loans disbursed followed a similar trend having dipped by Sh114 billion to Sh2.15 trillion last year.
This means that thousands of prospective borrowers were unable to access fresh loans from banks even as thousands of maturing loans were paid without successful applications for new ones.
It was also clear that only 15.37 per cent of the total 46.55 million bank accounts at end of 2017 had taken loans. This is down from 18.9 per cent the previous year and the peak of 24.6 per cent in 2015.
The 2017 drop ended the pattern of consistent growth in loan accounts that had persisted since 2010 when the Central Bank of Kenya (CBK) started publishing the information.
Kenya Bankers Association (KBA) chief executive Habil Olaka said the data was the clearest confirmation that the rate cap has made loans cheaper, but not available to customers. He expects the trend to continue.
“This compounds the fact that going forward, availability is becoming scarce. If loans are maturing but not being rolled over or renewed, then the number of loan accounts will continue to fall over time,” he said.
“For the ones that were already issued and had to be adjusted to the rate cap price, the drop in numbers means that riskier customers can’t get fresh loans on this rate because they don’t qualify.”
The decline in the number of bank accounts was even as customers opened 5.42 million new accounts and deposited an additional Sh300 billion, pushing the sector’s total deposits to Sh2.9 trillion.
Mr Olaka said this was partly due to customers seeking higher returns on deposits as provided for in the rate cap laws.
Many banks directed fresh deposits to government securities instead of the private sector, arguing that the caps had denied them a chance to lend to individuals whose risk profile was deemed to be higher than what the law could accommodate.
During the year, personal or household loan accounts, which account for over 85 per cent of loan accounts, dropped by 519,000 adding to the previous year’s to hit 1.14 million.
Households and personal account borrowing dropped by Sh42.43 billion last year from Sh584.55 billion in 2016, according to the data.
The agriculture sector, which many banks see as carrying the highest risk profile due to its dependence on erratic weather and poor book keeping, lost half of its 180,533 accounts in 2015 to 91,140.
The sector, which is the biggest contributor to GDP, recorded the first negative growth of 1.1 per cent since 2009, according to the Kenya National Bureau of Statistics data.
“Government needs to increase investment in terms of infrastructure to create enabling environment. This will de-risk the sector and lower the risk perception,” Mr Olaka said.
The list of sectors that posted a drop in loan accounts included trade (130,000) and real estate (2,700). Mining and quarrying, financial services, tourism, restaurant, hotels, building and construction also suffered similar fate.
Top banks such as KCB #ticker:KCB , Equity #ticker:EQTY , Co-operative Bank #ticker:COOP , Standard Chartered Bank #ticker:SCBK and Barclays #ticker:BBK booked declines in loan accounts – confirming Equity CEO James Mwangi’s statement in March that he was forced to be “really brutal a little bit” and deny riskier customers loans.
“We had to do real market play. So essentially we could only lend to those whose risk could be accommodated within our risk pricing. We didn’t want to pretend to be good,” he told investors in a teleconference call.
Gross non-performing loans (NPLs) rose 23.4 per cent to Sh264.6 billion, pushing the ratio of gross NPLs to gross loans to 12.3 per cent, up from 9.3 per cent.
This was mainly due to delayed payments from public and private entities, uncertainties due to elections and poor weather conditions, according to CBK.
Customers have been increasingly losing their commercial vehicles to the auctioneers’ hammer. KCB CEO Joshua Oigara said in January that the bank had auctioned more than 250 vehicles due to loan defaults, mostly due to delay in government payment to SMES.
“We are selling vehicles and I am sure the owners did nothing wrong. Most of them have not been paid for almost two years,” said Mr Oigara in January.
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