Financial institutions have projected an increased demand for loans in January owing to various factors including the anticipated reopening of schools.
In a Market Perceptions Survey conducted by the Central Bank of Kenya (CBK), banks projected four major scenarios which are set to be witnessed in the first quarter of 2024 as detailed below;
Increased Demand
Financial institutions project that parents will be seeking to borrow loans to meet financial obligations in schools.
Notably, the reopening of schools comes immediately after the festive season which saw many families spend much on food and travel. Basic learning institutions are set to reopen on January 8.
On the other hand, Form One students are also expected to report to various institutions on January 15. Apart from school fees, parents will also be obliged to purchase personal boarding effects for students.
Competition
Apart from parents, business people are expected to go for loans to stock their shops. This could make it competitive for those who are seeking loans.
"Bank respondents expected moderate to high demand for credit in December 2023 and January 2024 driven by businesses looking to stock up for the festive season and new school year financial obligations, working capital financing requirements, to cater for the high cost of inputs and for businesses to cushion themselves against slow-down in collections and payments by customers," read the CBK report in part.
Cautions Lending
The report by the CBK also indicated that financial institutions will be cautious with their lending owing to fears of defaults.
The anticipated growth of non-performing loans has been attributed to the state of the economy which has strained many businesses affecting people in meeting their obligations.
"Risks to the expected credit growth cited by respondents included economic uncertainty occasioned by high inflation which has reduced disposable income demand for credit and high cost of doing business, which has caused banks to become very cautious in lending to the private sector to minimize the risk of default," read the report in part.
Loan Recovery
Owing to the increase in Non-Performing Loans (NPL), banks and financial institutions are expected to drive up their plans to recover the loans.
This could see people lose their property in the process through auctions.
"The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio. The main sectors in which banks intend to intensify credit recovery efforts are personal and household (92 per cent).
"Other sectors are trade (87 per cent), manufacturing (78 per cent), transport and communication (76 per cent), and real estate (73 per cent)," read the statement in part.
