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Increased Loan Requests as Schools Gear Up for Reopening: Banks Projections

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Increased Loan Requests as Schools Gear Up for Reopening: Banks Projections

Financial institutions predict an increase in loan demand in January due to a variety of causes, including the anticipated reopening of schools.

Banks forecasted four primary scenarios that will be experienced in the first quarter of 2024 in a Market Perceptions Survey done by the Central Bank of Kenya (CBK), as mentioned below.

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Demand has increased.

Financial organizations anticipate that parents may seek loans to meet financial responsibilities in schools.

Notably, the reopening of schools comes directly after the holiday season, during which many families spent a lot of money on food and travel. Basic education institutes will reopen on January 8.

Form One students, on the other hand, are required to report to various schools on January 15. In addition to school fees, parents will be required to purchase personal boarding things for their children.

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Competition

Aside from their parents, business owners are obliged to seek loans to stock their stores. This might make it more competitive for people looking for loans.

The CBK report indicated that, according to bank respondents, there was an anticipation of moderate to high demand for credit in December 2023 and January 2024.

This demand was attributed to various factors, including businesses preparing for the festive season and meeting financial obligations for the new school year.

Additionally, the need for working capital financing to address the high costs of inputs and businesses seeking to safeguard themselves against delays in collections and payments by customers were identified as contributing factors.

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Cautions Lending

The CBK research also stated that financial institutions will be careful with their lending due to default fears.

The expected increase in non-performing loans has been attributed to the situation of the economy, which has stressed many firms and affected people’s ability to satisfy their obligations.

According to the report, respondents highlighted potential risks to the anticipated credit growth. These concerns encompassed economic uncertainty arising from elevated inflation levels, leading to a decrease in disposable income and diminished demand for credit.

Additionally, the high cost of conducting business was identified as a factor prompting banks to exercise increased caution in their lending practices to the private sector. This cautious approach aimed at minimizing the risk of default in the face of challenging economic conditions.

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Loan Recovery

As the number of non-performing loans (NPLs) rises, banks and financial institutions are anticipated to ramp up their efforts to recover the loans.

This could result in people losing their property through auctions. The statement indicated that the heightened efforts in credit recovery aim to enhance the overall quality of the asset portfolio.

Banks plan to concentrate these intensified recovery initiatives primarily in the personal and household sector, with a notable percentage of 92. Other sectors identified for increased credit recovery efforts include trade (87 per cent), manufacturing (78 per cent), transport and communication (76 per cent), and real estate (73 per cent).

This strategic focus reflects a concerted effort by banks to address and improve credit conditions across various key sectors.

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Increased Loan Requests as Schools Gear Up for Reopening: Banks Projections

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