Credit standards to building and construction and real estate sectors remained tightened in the third quarter of 2012 despite increased appetite for loans.
The latest credit officer report released by the Central Bank attributes this to jitters among banks, which expect the new land laws to adversely affect performance of loans to the two sectors. "This is due to the envisaged lengthy and more complex credit appraisal procedures," the CBK report says.
This year, three land-related laws - the Land Act, the Land Registration Act and the National Land Commission Act - have come into force to implement the 2009 National Land Policy.
Some lenders are afraid that sections of the laws will make it difficult doing business in the real estate and building and construction sectors arguing that some of the regulations are being enforced retrospectively.
Section 78 of the Land Act, for instance, says the law "applies to all charges (securitised mortgages) on land including any charge made before the coming into effect of this Act."
Section 28 of the Land Registration Act provides for 'overriding interests' such as spousal rights over matrimonial property, trusts and leases, among others, which will be affected "without their being noted on the register."
"These contemplated interests may make the charge an unattractive form of security as it introduces multiple parties whom a lender must recognise," Housing Finance managing director Frank Ireri said at a past briefing.
A significant portion of credit officers surveyed by Central Bank expect non-performing loans in the two sectors to increase in the three months to December.
In the third quarter, lenders intensified credit recovery efforts in real estate and building and construction, with 67 per cent of respondents confirming this. There was not a single lender who eased recovery efforts to the two sectors, the CBK data shows.
Forty-six per cent of respondents in the survey said demand for building and construction loans increased in the quarter, but the fears over new land laws meant few lenders were willing to extend credit to this category of borrowers.