Political activity projected to slow down banking operations

NAIROBI, Kenya Jan 20-Kenyan banks are expected to experience a slowdown in activity this year as they adopt a wait-and-see approach in the run-up to the August 9 General elections, an international investment firm has said.

A research note prepared by Renaissance Capital projected that lending activity in the first half of 2022 will be relatively muted as politicking ramps up.

“We forecast moderate loan growth of 10-15 percent in 2022 for the Kenyan banks under our coverage universe, with most of this kicking in by 2H22. Subsidiaries are also expected to contribute to loan growth as well, especially in the case of Equity and its ongoing expansion into DRC,” the firm said.

It, however, remained confident of a peaceful election cycle which it said will be less intrusive to banks’ business operations and thus beneficial for returns.

The firm predicted that leading up to the start of the official campaigns and eventual election, there could be some deceleration in economic activity in order to ascertain how the election plays out.

“This could slow lending and transactional activities at the banks. However, we expect this to rebound fairly quickly after the end of the election cycle,” it said.

The firm which analyzed the Kenyan banking system’s net domestic credit trends in the run-up to the 2017 elections said that credit to the private sector was lacklustre over the period.

“While the political landscape could have contributed to this slowdown in growth, we believe that the rate caps which had been introduced in September 2016 could also explain the moderation here,” the firm said.

A recent risk report prepared by Fitch ratings revealed that high long-term and short-term political risks are likely to dent Kenya’s economic growth and hurt investors’ confidence

The global analysis by the rating agency showed that Kenya lags behind its East Africa peers in the political risk index even as the country prepares for general elections next year.

Kenya’s short-term political risk index is at  51.3 per cent compared to Tanzania’s 61.2 per cent and Uganda 58.1 per cent.

Fitch Solutions Political and Economic Risk Indices puts 100 per cent as the lowest risk while 0 per cent represents a high risk.