Study reveals key opportunities for low-end bank mortgages

New research suggests there is still room for more housing lending in the market, despite data showing a decline in mortgage lending as a share of total credit.

Kenya Mortgage Refinancing Company (KMRC), which analysed the Central Bank of Kenya’s (CBK) annual banking supervision report, found that there is room for growth in low-end financial institutions. These low-end banks also have low mortgage to total loan ratios, with one Completely exit the market. This is compared with the top banks.

The study, titled “The State of the Bank Mortgage Market in 2023,” details that 80% of mortgages in the market are concentrated in the top seven banks. In 2022, that figure was 78%.

KCB Bank topped the list with 31% of total mortgage loans, followed by Stanbic Bank with 12% and HFC Bank with 9%.

NCBA and Standard Chartered Bank each account for 8%, Absa Bank for 7%, while Cooperative Bank, Equity Bank and Family Bank each account for 5%. “In contrast, the lower tiers of the market are more fragmented, but also reflect the diversity of the market,” the study said. The share of mortgages in total loans will steadily decline from 7.2% in the previous year to 6.7% in 2023, the study said. HFC Bank, whose business model revolves around housing, has the highest share of mortgages in total loans at 51.2%, followed by Development Bank of Kenya Limited (26%) and Gulf Africa Bank Limited (13.4%).

“In contrast, banks such as Equity Bank Ltd and I&M Bank Ltd have lower ratios of 3% and 2% respectively, indicating a more diversified loan portfolio,” the study said. “This difference highlights the different strategic orientations of the sector, with some banks focusing on mortgage lending as a core business.” While others maintain a wider Lending priorities. ”

In 2023, there were 30,015 mortgages in the market, an increase from 27,786 in 2022. However, the KMRC study showed that the depth of mortgage lending in the country has slightly declined.

Home Ownership

The CBK-regulated KMRC was set up by the government in 2018 and launched in 2019 with an aim to increase home ownership through single-digit mortgage loans.

At the launch, former President Uhuru Kenyatta had envisioned the number of mortgages under the agency to increase to 60,000 by 2022. “The mortgage-to-GDP ratio, an overall measure of the importance of the mortgage financing market relative to overall economic activity, declined slightly from 1.94% in 2022 to 1.86% in 2023, indicating that mortgage growth has failed to keep pace with overall economic growth,” the study noted.

The peak in the past decade was 2.95% of GDP in 2015, and has been falling since then.

At that time, in 2015, mortgages accounted for 9% of total industry loans, while in 2016, when interest rates fell from 18.7% to 13.5%, this share rose to 10%. KMRC pointed out that although the mortgage market is concentrated in seven institutions, the (mortgage) portfolios of major mortgage institutions have all seen significant growth.

The report states that Credit Bank will have a growth rate of 153% by 2023, followed by Prime Bank (93%) and Premier Bank (74%). Other banks include NCBA (31%), Ecobank (17%), Diamond Trust Bank or DTB (13%), Absa (13%), HFC (11%), KCB (11%), Family (7%) and I&M (7%).

“These market growth dynamics suggest There is still a lot of space “The growth in the mortgage market, especially among small and medium-sized banks, which currently have a smaller share,” the KMRC study said.

“In contrast, Spire Bank experienced a dramatic contraction, shrinking by as much as 100%, indicating a complete exit from the mortgage market.”

Sidian Bank is another institution with a low mortgage-to-loan ratio of 0%. DTB, Prime Bank, African Banking Corporation, Victoria Commercial Bank and Middle East Bank Ltd all have a mortgage-to-loan ratio of 1%.

National Bank of Kenya has a mortgage-to-total loan ratio of 2%, similar to Bank of India and I&M Bank, while Kingdom Bank of Kenya, Guardian Bank, Paramount Bank, SBM Bank (Kenya) and Equity Bank Ltd have a mortgage-to-total loan ratio of 3%.

The size of non-performing loans (NPLs) increased from Sh37.8 billion to Sh40.8 billion in 2023. At the bank level, 14 banks had higher mortgage NPL ratios than the industry average mortgage NPL ratio, the study showed. “Kingdom Bank had the highest mortgage NPL to total loan ratio at 73%, followed by African Banking Corporation Ltd at 68%,” the study showed.