|Banks cautious about unsecured personal loans|
|Written by Allan Odhiambo|
February 5, 2008: Until late last year, the scramble for private households by banks seeking to maximise their earnings looked unstoppable.
With most middle-class private households seeking to share in the fortunes of economic take-off, banks and other financial institutions saw an opportunity to grow their revenue from lending schemes, mainly through credit facilities such as car loans and mortgages.
This rush translated into premium earnings for the lending institutions because credit terms handed to the households were at relatively higher interest rates than most business enterprises and companies would accept.
Central Bank of Kenya’s November monthly economic review shows that lending to domestic households remained the single largest segment with a share slot of 38.4 per cent worth about Sh27 billion as at September 2007 having grown by Sh7billion over the previous month.
But with the recent wave of violence triggered by the disputed December presidential election results, the future of this key revenue source for banks is now uncertain, with some analysts warning of a possible slowdown amid fears of bad debts should the standoff carry on longer.
Others, however, expressed optimism that the ongoing mediation talks led by former UN secretary-general Kofi Annan would provide a panacea to the turmoil and reverse gains in the sector, hence stalling any major slumps in domestic lending.
“While it is unlikely that banks will be aggressively seeking to grow their lending to domestic households in areas affected by the clashes, it is also very unlikely that they will be foreclosing on such facilities,” NIC Bank managing director James Macharia told Business Daily.
Thousands of households affected by the orgy of violence are seeking funds to reconstruct their lives, but the institutions have remained cautious about seizing such opportunities to generate revenue because of potential risks.
“It is difficult for the institutions right now because a lot will depend on what is going on on the political front, whether it is business as usual or business unusual. Everyone was so positive, but that has turned out to haunt us.
However, it could be too early to tell where things could be headed just yet,” John Wanyela, the executive director of the Kenya Bankers Association said.
Analysts said even as banks remained cautious on future lending to households, numerous measures are already underway to mitigate any possible effects of bad loans that may arise from the disbursements that had already been made before the turmoil set it.
“Banks are positively seeking ways to help customers go through this recovery phase, within the constraints of their own business requirements,” said Mr Wachira.
“How banks assist customers will vary on case by case basis. Such may include rescheduling of loans for longer terms or allowing a moratorium for the payment of principal and interest, enhancement of working capital facilities, conversion of foreign exchange loans to local currency.”
And even as the banks grapple with the dilemma over their lending schemes the State, through the Special Programmes ministry has since established a Sh1billion reconstruction fund to help all affected by the post-election turmoil.
Analysts say the disbursement through the State might be of major assistance especially to households that lost crucial documents such as national identification cards and land title deeds in the skirmishes.
Its mandatory that one produces an ID or other forms of documentation when transacting deals with the lending institutions.