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Tourism sector to suffer credit squeeze due to terror attacks, says banks

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By JK Mwangi

Commercial banks are expected to reduce lending to the tourism sector and agriculture due to perceived risks associated with terrorism and unfavourable weather.Tourism is expected to suffer due to frequent terror attacksTourism is expected to suffer due to frequent terror attacks

According to a credit officer survey done by the Central Bank of Kenya (CBK) says most credit officers interviewed said they foresee a slight increase in non-performing loans (NPLs) in the agriculture, tourism and real Estate sectors.

“The expected increase of NPLs in the Agriculture sector may be explained by reduction in tea prices arising from over production and glut in the market, and the prevailing delayed onset of long rains (March – May 2014), which may result in food shortage,’” says the report.

“The current spate of insecurity in the country may be attributed to expected increase in NPLs in the tourism sector while the high interest rates are expected to impact negatively on real estate sector.”

Highlights

In the quarter, aggregate balance sheet (total assets) increased by 3.3 per cent from Sh2.73 trillion in December 2013 to Sh2.82 trillion in March 2014.

Gross loans and advances grew by 5.6 per cent from Sh1.60 trillion in December 2013 to Sh1.69 trillion in March 2014.

Banking sector deposits increased by 2.5 per cent from Sh1.98 trillion in December 2013 to Sh2.03 trillion in March 2014.

Total shareholders’ funds increased by 5.11 per cent from Sh431.49 billion in December 2013 to Sh453.61 billion in March 2014.

Cumulative unaudited pre-tax profits for the quarter ended March 31, 2014 stood at Sh33.4 billion compared to Sh28.2 billion for the quarter ended March31, 2013, an 18.4 per cent increase.

However, the officers predict a drop in NPLs in the energy and water sector due to Government’s efforts in boosting its power sector and reduction of cost of electricity through the production of electricity using geothermal steam which is cheaper thus resulting in a sharp reduction in the cost of electricity.

The report says demand for credit generally increased in most economic sectors, with cheaper credit, retention of Central Bank Rate (CBR) at 8.5 per cent and availability of investment opportunities being cited as the main driving factors.

The highest growth in demand for credit was witnessed in the building and construction, trade, and personal/household sectors with 60 per cent, 69 per cent, and 59 per cent of the respondents citing growth.

Marginal reduction in demand for credit was reported in energy and water, tourism and real estate while 71 per cent of the respondents in the mining sector indicated that the demand remained unchanged.

“This may be attributed to the wait and see attitude as investors await the outcome of the ongoing reforms in the mining sector including enactment of the Mining Bill currently before Parliament,” says the report.

 

 

 

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