Kenya's Credit Market Set to Slow Down as Effects of COVID-19 Pandemic Take Hold - Report

Nairobi — Kenya's credit market will come under severe pressure as the COVID-19 pandemic impacts the Kenyan economy, with Gross Domestic Product expected to slow to between 4.5-5.5percent, down from the previously forecasted 5.9percent, a new report reveals.

The study conducted by American consumer credit reporting agency TransUnion reveals that individuals and businesses are failing to meet their credit obligations which could lead to increase in non-performing loans.

"Increases in non-performing loan rates across product types are pushing the market to find solutions that price loans according to anticipated risk. Market demand for a risk-based pricing model is high," said TransUnion Africa Product Director Samuel Tayengwa.

The survey comes after the Central Bank of Kenya in June revealed that the ratio of non-performing loans stood at 13.1 percent, the highest since August 2007 when it stood at 14.41 percent.

This showed that banks were losing an average of Sh131 for every Sh1,000 loaned in a period when lending rates have fallen to 15-year lows at 12.09 percent.

At the same time, there was an increase demand for credit in the banking sector in the areas of trade mobile and personal loans in the first quarter of 2020.

The total number of loan accounts increased by 21percent, from Sh108.2 million in the last quarter of 2019 to Sh131.4 million in the first quarter of 2020.

This was likely due to a high demand after the festive season to fund items like school fees and boost business cashflows.

Approximately 92percent of accounts opened were mobile loans, with more than 40 mobile loan lenders active in the Kenyan market.

However, there was a sharp decline in new business loans, despite the repeal of the interest cap in November 2019, which opened many opportunities for funding both large businesses and small and medium-sized enterprises that had suffered from a cash flow shortage.

The report however did not reflect the impact of COVID-19, it provides a valuable pre-pandemic baseline point for the Kenyan credit market.

"With COVID-19 changing the economic and consumer landscape at pace, the Q1 2020 report provides a valuable benchmark for the last full quarter before the impacts of the pandemic start to be felt and understood. This will allow the market to truly evaluate the impact of the pandemic in future quarters. We're likely to see a deterioration in the Q2 2020 data, reflecting the impact of COVID-19 on the credit market from April 2020," said TransUnion Africa Product Director Samuel Tayengwa.

According to the data, It is expected that government measures to cushion the economy against the aftermath of COVID-19 will help unlock disposable income and ease indebtedness for some, or create an opportunity for loan top-ups, upselling and the acquisition of new credit facilities.

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