Kenya Bankers Association (KBA) CEO Habil Olaka. FILE PHOTO | NMG Banks will now have additional money for lending towards home ownership after the regulator lowered the capital required to back mortgages.
The Central Bank of Kenya (CBK) has been requiring banks to maintain capital that is at least half the value of the mortgage book but has now cut this to 35 percent.
The changes, which took effect on July 1, effectively mean that banks can now lend more towards homeownership at the current capital levels.
CBK says the changes are expected to encourage banks to give out more mortgages in a market that has added 10,836 mortgage loans in 10 years yet annual demand for housing units is estimated at 200,000.
The CBK director for bank supervision Gerald Nyaoma has sent a circular to all lenders, instructing them to effect the changes.
“CBK has decided to review the capital adequacy risk weighting for all residential mortgages from the current risk weight of 50 t0 35 percent. It is envisaged that this amendment will free capital for banks to increase their mortgage lending,” said Mr Nyaoma.
The changes, added to last September’s licensing and operationalisation of the Kenya Mortgage Refinance Company (KMRC), are expected to offer boost to the mortgage market.
KMRC is expected to lift uptake of domestic residential mortgages by offering long-term loans to primary mortgage lenders including commercial banks, microfinance banks and savings and credit co-operatives.
CBK data showed the value of mortgage loans outstanding was Sh232.7 billion in December last year compared to Sh237.7 billion in the previous year, cut by repayments and lower new loans in Covid-19 environment.
Kenya Bankers Association (KBA) has welcomed the CBK changes saying it will help lenders to issue out more mortgages without raising fresh capital.
“The review has created additional room for banks to add more mortgages on their balance sheet at the same capital levels,” said Habil Olaka, KBA chief executive.“A bank with a mortgage of say Sh10 billion on the balance sheet has had to maintain a regulatory capital of Sh5 billion. But now this drops to Sh3.5 billion, meaning Sh1.5 billion has been released to get more mortgage loan.”Banks have different portfolio mixes which effectively determine regulatory capital and therefore it is not easy to determine the exact amount the CBK change will release to the market. A new phenomenon in Nairobi’s estates is worrying residents.It seems every day regular businesses like salons, […]
