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Faces of Indebtness

In: Business and Management

Submitted By Bodosium92
Words 8289
Pages 34
FACES OF INDEBTNESS 1) KENYA
Kenyan borrowers promptly repay their loans despite the stiff interest rates and high inflation, presenting a lower default risk investment environment for banks compared to other parts of the world. The low default risk for banks has however not translated to lower interest rates for customers despite the credit referencing system taking effect. The credit risk is measured in terms of gross non-performing advances as a percentage of the total gross advances.
A survey by audit firm RSM Ashvir, based on banks 2012 financial reports showed only 4.6 per cent of loans by banks in 2011 ended up as non-performing advances.
The banking industry disbursed Sh1, 335 billion, out of which only Sh61.4 million was defaulted.
The risk has consistently decreased from 7.9 per cent in 2009 to 6.3 per cent in 2010.
With the increase in interest rates and inflation rate, non-performing advances were expected to go higher, but it is not the case. This shows that the risk in the Kenyan market is low
Interest rates spiked in December 2011 after the Central bank increased its key lending rate to a high of 18 per cent to curb the inflation rate which had peaked at 19.72 per cent in November that year.
Though both the Central Bank Rate and inflation rate have dropped to 9.5 per cent and 4.11 per cent, banks are still lending at an average of 17.84 per cent.
Microfinance institutions in Kenya have suffered significant loan repayment default resulting into subsequently decreased employment levels and cash flow problems in microfinance institutions this can partly be attributed to the high interest rates of government borrowing. Commercial banks hold about 53.7 per cent of total bills and bonds so banks are left with just about Sh250 billion to lend to private sector keeping demand for loans higher than the supply. Based on this, the Government should

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