CBK should have cut rates earlier – Rencap
Commercial banks have begun lowering their lending rates even as a Panafrican investment house warns that the current high interest rates have already dented economic growth this year. Barclays, KCB, Coop, CFC Stanbic and Stanchart are among the big banks that have matched a Central Bank rate cut of 1.5 per cent announced earlier this month.
According to Renaissance Capital, CBK should have cut interest rates earlier to avoid hampering economic growth as the banking sector begins to show a slowdown in loan uptakes. Sectors such as financial services, Rencap says, slowed down sharply in the first half of this year while activity in the normally robust construction sector plunged 50 per cent.
Rencap projects that growth in 2012 will fall to 4.0 per cent down from the 4.4 per cent recorded in 2012 as gains made in farm productivity after a spell of good rains are offset by a slowdown in sectors dependent on financing from banks. A high-interest rate regime has seen the private sector shun borrowing and likely put on hold expansion plans. “Credit growth has been slowing from a high of 37 per cent YoY (year on year) in September 2011, to the last reported number of 23 per cent in April 2012,” Rencap says in a new note to investors. “We are still anticipating credit growth to slow below 20 per cent by year-end – we are looking for 10 per cent growth for the sector, but highlight that our economist has a slightly higher forecast of 13 per cent.”
The bank uses Equity Bank and KCB to draw some of its conclusions. Both showed a slowdown in loan book growth towards the end of last year as the high-interest rate regime kicked in. “Analysis of loan book growth for KCB and Equity shows that annualised growth for KCB peaked at end-September 2011 at 41 per cent before declining to FY11 growth of 34 per cent; while at Equity, growth peaked at 56 per cent (annualised) at June 2011 before declining to 45 per cent by year-end,” Rencap notes.
The report comes as Citi Group Global Markets published a report suggesting that in the wake of high interest rates, banks might be understating their non-performing loans. The report titled “Don't get caught when the music stops” claims Kenyan banks have understated NPLs to the tune of Sh20.8billion for the year 2011. Indeed, Rencap notes inconsistencies between the NPL figures in unaudited quarterly reports and those contained in the audited annual reports that have to conform to International Financial Reporting Standards (IFRS).