The Kenya Bankers Association (KBA), a key regulator for the country’s banking industry, has criticized the nation’s government for implementing policies that have been detrimental to private sector lending.
The KBA, an organization that seeks to promote industrial development and economic growth by engaging the government and the Central Bank of Kenya, shared a review of the effects of a recent law dubbed the Banking (Amendment) Act 2016 this morning.
This review is based on evidence of market outcomes and bank level data. It confirms the adverse consequences of the law one year into its implementation.
The aptly named ‘Banking Act Effects Survey’ covers 77% of the banking industry and reveals that the law has exacerbated the decline in bank credit to the private sector.
The Association claims that credit to the private sector is nearly grinding to a halt, with the most affected being unsecured personal loans.
“Given the demonstrable association between credit growth and outperformance, it means that the economy is hurting,” said the regulator in a statement issued earlier today.
Given the constrained ability of banks to freely price risk under the law, the analysis in the survey findings reveals a heightened scrutiny of loans. As a consequence, a huge discrepancy between the number of loan applications and what was actually disbursed is evident.
KBA CEO Habil Olaka currently addressing media on the Banking Act Effects.
“Earlier in the year, KBA undertook 2 studies: The impact of Banking Act on customers’ savings and loans, and a banking survey to assess the initial implications of the law on the banking system and the wider economy,” said KBA Chief Executive Officer, Habil Olaka as he addressed journalists in the Kenyan capital of Nairobi on October 19, 2017.
“One of the major outcomes from a consumer perspective was that most customers were not borrowing or saving since the Act came into force,” he continued.
Mr Olaka stated that after the law was enforced, credit approvals slowed down, noticeably in four key sectors: Household, Trade, Manufacturing, and Building and Construction.
The four sectors account for 70% of Kenya’s credit market.
“This briefing is part of our commitment since the release of the initial assessment to update the evidence of the implications of the law,” Olaka added.
The Kenya Bankers Association states that since May 2017, loan disbursement has been on a declining trend, regardless of the fact that applications have been on an upward trajectory.
In June 2017, an estimated 3.2 million loan applications were made, but only 1.1 million loans were disbursed. This represents a 34 percent success rate. According to the survey, loan applications and disbursement started declining immediately after the law was signed.