African banks curb bond trend
African central banks are pushing lenders to cut purchases of government bonds and instead lend more to local companies. |||
African central banks are pushing lenders to cut purchases of government bonds and instead lend more to local companies that are key to creating a functioning commercial economy.
Borrowing costs in some of sub-Saharan Africa’s biggest economies have barely budged, even after central banks slashed interest rates.
Average lending rates at commercial banks in Kenya were little changed at 13.85 percent in October compared with 14.2 percent in January last year, even after the central bank cut its key rate to a record low of 6 percent.
Ghana’s key rate of 13.5 percent compares with an average 28.5 percent banks charge.
Nigeria has capped lenders’ purchases of treasury bills and Mauritius may do the same.
Africa’s “top-tier corporate banks feel the risks are still too high,” said Graham Stock, chief strategist at London-based Insparo Asset Management.
“Poor decision-making led much of the developed world’s banking system into this crisis, so banks generally are right to be cautious.”
Spurring the commercial loan market would give industry funds in a region the International Monetary Fund expects to grow 5.5 percent in 2011, less than its 6.4 percent estimate for all developing nations. The main concern for African central bankers is inadequate lending may curb growth.
“What we haven’t seen… is commercial banks following the trend to the same extent,” said first deputy governor of the Bank of Ghana, Kofi Wampah, in Accra.
The gap between bank interest rates and the central bank should be five or six percentage points. Because banks’ funds are “trapped in treasury bills”, it takes them months to follow the central bank in paring their rates, he said.
Banks say a lack of credit-profiling systems and legal consequences for those who default raise their caution.
Sanjay Rughani, finance director at Standard Chartered Ghanaian unit, said advances since the start of 2010 to end-September were largely unchanged from last year at 500 million cedis (R2 427m).
The lender increased its holding of government debt to around 550m cedis this year from 300m cedis for the same period in 2009.
Kenya’s central bank has taken steps to improve transparency, granting CRB Africa the country’s first credit-rating agency licence in February.
Rates for average customers have remained high because banks are still seeing defaults on repayments, said Gideon Kariuki, chief executive officer of Co-operative Bank of Kenya, the country’s fourth-biggest bank by assets. Co-operatives’ net non-performing loans rose 25 percent to 2.9 billion shillings (R250m) in the year until December.
Still, “there is increased uptake of loans and the rates at commercial banks have come down”, he said. “The central bank has influenced that.”
Co-operative offered a five-year loan to corporate customers for as little as 8.7 percent in September compared with as much as 13 percent a year ago.
Co-operative’s stock has more than doubled on the Nairobi Stock Exchange this year and three banks are among the 10 best performing shares.
High lending rates are spurring companies to seek funds through less expensive debt and equity offers. Housing Finance, Kenya’s only publicly traded mortgage lender, sold 7bn shillings of bonds last month, 80 percent of which pay a fixed rate of 8.5 percent, to raise funds for lending. The rest of the securities have a floating rate.
“We opted for a bond, as it’s cheaper than a bank loan and it’s difficult to get more than a five-year tenor from a bank,” Housing Finance managing director Frank Ireri said recently.
In Nigeria, sub-Saharan Africa’s second-biggest economy, lending to private industry fell to a nine-month low of 9.91 trillion naira (R453bn) in July after a debt crisis caused by loans to speculators who used the borrowed funds to buy stocks. Central bank governor Lamido Sanusi said in September he did not expect banks to increase credit until at least the first quarter of 2011.
Lenders and investors bought Treasury bills, with the yield on 91-day securities declining to a record of 1.04 percent in March and averaging 2.26 percent this year, compared with a high of 22.5 percent in 2002, central bank data show.
The central bank maintained its key lending rate near a record low of 6.25 percent at its November 23 meeting. Banks’ average prime-lending rate was 16.9 percent in August, Sanusi said. That compares with 18.98 percent in the last quarter of last year.
The country plans to limit lenders’ holdings of government debt to 30 percent of their total portfolio of fixed-income securities. They won’t be allowed to hold more than 10 percent of the total issue of a single government debt security, the Abuja-based central bank said on September 24.
Mauritius proposed on September 11 capping banks’ holdings of government and central bank debt to “encourage banks to lend more aggressively rather than direct all their surplus funds to Treasury bills and official papers”.
About 19 percent of residents in 18 sub-Saharan countries have bank accounts, says a Gallup survey. Renaissance Capital economist Yvonne Mhango said in Johannesburg that credit was mainly extended to companies, banks and their employees.
Land is not always under title deed and can be communally owned, and in cases where collateral is available, it isn’t always enforceable, she said.
Sluggish credit extension in countries like Nigeria and Ghana, “has stalled economic activity, reducing growth to below its full potential.
“Central banks are doing their part by lowering interest rates, but that alone won’t solve the problem.” – Bloomberg
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