Banks to up investments in State securities ahead of elections, say analysts
MARKET: The banking sector’s total assets expanded by 12.4 per cent in 2020 to Sh5.4 trillion from Sh4.8 trillion in 2019, driven mainly by investments in government securities.
According to a the Kenya Bankers Association’s (KBA) 2021 State of the Banking Industry (SBI) report, investment in government securities surged by 18.5 per cent, as gross loans and advances rose by 6.7 per cent.
This as analysts predict a continuation of this state of affairs, especially as the country faces elections next year, and with banks preferring to do business with the government as opposed to the private sector they say is risky, and not robust yet.
“There is still cautiousness among banks to extend credit to the private sector, and so government securities are still favourable in this environment,” said Churchill Ogutu, a head of research at Genghis Capital Ltd.
Domestic borrowing by the government has increased by close to Sh120 billion since last year, a matter Ogutu said strengthens the view that credit mediation will remain subdued.
He said micro, small and medium enterprises (MSMEs) will face it rough time as banks will require stiffer collateral terms to advance them credit.
Last year, the government, through the Public Finance Management regulations (2020) set up a Sh3 billion stabilisation facility to extend credit to MSMEs to be utilised for working capital, acquisition of assets, and recovery from Covid-19 impacts, a credit guarantee scheme Ogutu said is paltry for the overall segment.
Central Bank of Kenya says bank lending to MSMEs rose by 42 per cent between 2017 and 2020 to stand at Sh638.3 billion by December 2020, up from Sh413.9 billion in December 2017.
It adds that the banks’ profits before tax dropped by 30.9 per cent - the lowest level since the year 2012, though the industry remained stable despite being buffeted by the effects of the Covid-19 pandemic.
Samuel Tiriongo, KBA’s Research and Policy Director attributed the decline to a depressed economic performance and quality of assets held by banks during the year, a period that saw provisioning for loan losses increase by 47.5 per cent to Sh198.1 billion from Sh134.3 billion in 2019, with loan loss accommodations absorbing 45.7 per cent of non-performing loans compared to 40.2 per cent in 2019.
