[Photo/rebornwithcash.com]
Uncertainties’ arising from the ongoing political impasse is likely to dampen demand and supply of credit as business entities put expansion plans on hold while banks become more reluctant to lend, an investment report has disclosed.
According to Britam Asset Manager Report, banks are likely to reconsider the deteriorating asset quality and risks including pricing constraints brought on by interest rate caps. The report further indicates that large deficits and high borrowing costs could increase liquidity risk in light of more financing needs and uncertainty over the future direction of economic and fiscal policy, due to evolving political dynamics.
“Based on a net domestic borrowing target for 2017/18 financial year of Sh410.2 billion, Sh383.0 billion in the four months of the financial year has been raised against maturities of Sh367 billion resulting in a new borrowing of Sh16.0 billion in the fiscal year,” the report said.
“Government borrowing has been affected by the prolonged electioneering period as well as high liquidity levels which have supported the stability of short-term interest rates. Inflation has continued to decline, coming in at 5.7 percent in October, the lowest reading in 17 months.
For these reasons, interest rates are likely to remain at current levels in the near term,” the report said. Britam’s portfolio manager James Mose estimates that the industry gross non-performing loan ratio deteriorated to 10.7 percent in August from 9.2 percent at the end of 2016.
Muse’s arguments are corroborated by a study done by Stanbic Bank, which found that the Purchasing Managers’ Index™ (PMI™), had dipped to a new survey-record low of 40.9 in September from 42.0 in August and was consistent with a sharp deterioration in the health of the private sector.
Moody’s Investors Service which appeared to have downgraded the B1 long-term issuer rating of the Government of Kenya also points to the problem. The rating downgrade is expected to make it more expensive for the Kenyan government to access credit in international markets thereby forcing them to return to domestic borrowing, further crowding out the private sector.