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Business News of Thursday, 25 June 2020

Source: thefinderonline.com

Banks project rebound in loans demand


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Banks in the country are projecting a rebound in demand for corporate and household loans in June and July 2020.

This will be driven by increases in demand for all subcomponents of corporate and household loans except for mortgages.

According to the May 2020 Banking Sector Development Report, demand for loans continued to decline as banks reported a dip in demand by both corporates and households during the April 2020 survey. The decline in overall demand for loans it said also reflected the slowdown in economic activity due to the coronavirus pandemic.

However, economic activity appears to be bouncing back. The overall credit stance on household loans also tightened between February and April 2020.

The net tightening in the credit stance the report said reflected in a tightened credit stance on both loans for house purchases and consumer credit in April 2020, relative to the February 2020 survey.

Following the presence of COVID-19, the banks revised their credit policy stance to avert any risks associated with borrowing. In that regard, the banks reduced their loans and advances particularly to new clients who do not have borrowing history.

Asset Quality

According to the report, all sectors recorded declines in their Non-Preforming Loans ratios albeit with different variations, except for the mining and quarrying sector.

Sectors with high NPL ratios in the industry recorded significant improvements in asset quality over the period.

The electricity, water and gas sector saw its NPL ratio decline from 33.9 percent to 25.5 percent. Agriculture, forestry, and fishing also recorded a sharp decline from 36.4 percent to 20.8 percent, while manufacturing saw its ratio dip from 26.6 percent to 19.1 percent.

The services and commerce and finance sectors, the two sectors with high shares of credit, as expected experienced only marginal declines in NPL ratios.

On the other hand, the mining and quarrying sector, as recipient of the lowest credit, saw its NPL ratio edging up from 7.0 percent to 11.5 percent

Meanwhile, banks’ expectations for the inflation rate six months on has remained unchanged at 9.0 percent since the beginning of the year. The Banks’ expectations for the lending rates were revised downwards from 21.0 percent to 20.3 percent, in line with the decline trends in average lending rates.

This follows the 150 basis points (1.5 percent) reduction in the monetary policy rate in March 2020.

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