Credit risks decline, loan approvals rise

Although, there has been a drop in credit risks and growth in loan approvals, the credit situation remains fragile. Photo / File 

What you need to know:

  • Laon approved increased due to lower risks associated with lending reflected by the decline in non-performing loans and the pick-up in economic activity 

 Loan approvals to private sector grew during December signaling a decline in credit risks that had dominated much of 2022. 

The decline also signals a return of confidence with many businesses and individuals, alike now seemingly able to service loans. 

According to data from the Ministry of Finance Performance of the Economy report for January, loan approvals increased to 77.6 percent in December compared to 50.4 percent in November. 

This, the report noted, was partly due to lower risks associated with lending reflected by the decline in non-performing loans and the pick-up in economic activity, which was reflected by improvement in economic indicators and business activity. 

During the period, data shows, credit to building, mortgage, construction and real estate accounted for the largest share of approved loans, taking up at least 32.1 percent or an equivalent of Shs508.5b out of the approved Shs1.586 trillion. 

Loans to construction and real estate had decline due to high risk exposure in the last two year. 

However, the details above signal recovery from subdued demand, especially in the real estate sector. 

Credit to trade stood at Shs282.3b or 17.8 percent while personal and household loans, accounted for Shs271.8b (17.1 percent). Manufacturing was advanced Shs107.3b (6.8 percent) while mining and quarrying received Shs179.8b (11.3 percent). 

Business community, social and other services received the least amount of Shs115.2b or 7.3 percent. 

During the period, data indicates the six sectors above constituted at least 92.4 percent of all the credit extended to the private sector. 

The report further indicates that the stock of outstanding private sector credit grew by 1.3 percent to Shs20.154 trillion in December 2022 from Shs19.886 trillion in November 2022, with increases recorded for both shilling and foreign currency-denominated loans.  

The stock of shilling denominated loans stood at Shs14 trillion while foreign currency denominated loans rose to and Shs6 trillion. 

This was an increase from Shs13.9 trillion and Shs5.938 trillion, respectively in November 2022, partly due to a decline in lending rates.