New Market Report: Kenya Commercial Banking Report Q4 2012

Recently published research from Business Monitor International, "Kenya Commercial Banking Report Q4 2012", is now available at Fast Market Research

by Bill Thompson

(WireNews+Co) - Boston, MA - 26 October 2012

2012 will be a year of two halves for Kenyan banks. The first six months will prove challenging due to high inflation and interest rates and tight domestic liquidity.

However, conditions should improve as these pressures dissipate over the course of the year. All told, we believe that total banking sector assets will grow to KES1,817bn (US$20bn, 44% of GDP) by the end of 2012, 15% higher than our estimated figure for the end of 2011.

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Policy risk poses the greatest threat to the sector in our view. In line with the view that we put forward in our last quarterly update on the Kenyan banking sector, there are signs that banks are starting to feel the strain of an adverse macroeconomic climate (online service, October 27, 'Clouds Gathering For Banking Sector').

Although up-to-date data on asset growth were unavailable at the time of writing, anecdotal evidence and the trajectory of interest rates suggest that credit extension is slowing. In further bad news for the sector, banks are also facing pressure from the government to cap lending rates. Growing political scrutiny raises the risk of greater regulation which could harm the long-term prospects not only of the Kenyan banking sector but of the economy as a whole. The news is not all bad however.

It seems all but certain that the Central Bank of Kenya's (CBK) aggressive hiking cycle enacted during the final months of 2011 has come to an end.

With inflation likely having topped out, we believe that the CBK will begin easing policy during the second quarter of 2012 and this should ease some of the pressure on Kenyan banks. Liquidity in the economy is also likely to receive a boost by increases in fiscal expenditure as elections (currently scheduled for March 2013) approach.

With these things in mind, we believe that the climate will improve for the banking sector as the year progresses.

Challenging Times... The latest available data from the CBK show that loan growth continued to accelerate rapidly in September with total private sector credit coming in at KES1,148bn (US$11.9bn), some 36% higher than a year earlier.

 

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