FILE | NATION Kenya Commercial Bank building on Moi Avenue, Nairobi.

FILE | NATION Kenya Commercial Bank Group more than doubled its mortgage book to Sh33.7 billion last year from Sh15.6 billion in 2009, raising its market share among the top six mortgage lenders to 40.8 per cent from 35 per cent in a similar period last year.  


Kenya Commercial Bank Group (KCB) has raised its share of the mortgage market, riding on the back of a huge capital base to increase its portfolio of the long-term loans.

It more than doubled its mortgage book to Sh33.7 billion last year from Sh15.6 billion in 2009, raising its market share among the top six mortgage lenders to 40.8 per cent from 35 per cent in a similar period last year.

This opened a huge gap between the bank and its closest competitor, Housing Finance, whose mortgage portfolio grew 66.8 per cent to Sh25.2 billion, with its market share dropping from 33.8 per cent to 30.5 per cent.

Other banks that ceded market share despite growing their lending to the real estate sector include CFC Stanbic and Standard Chartered.

The Co-operative Bank, which is a late entrant to the mortgage market, staged an upset raising its loan book more than nine times to Sh4.9 billion from Sh55.5 million.

Mortgages among the top six lenders nearly doubled to Sh82.4 billion from Sh44.5 billion, with KCB and Co-op emerging as the biggest beneficiaries of the new demand.

“KCB has benefited from its large capital base, which has been further strengthened by major fund raising in the past two years,” said Renaldo Desouza, an analyst at Genghis Capital.

He added that mortgages are long-term in nature and a large capital base like that of KCB is, therefore, critical for lenders to aggressively expand their lending in that segment.

The bank’s total assets stood at Sh330.7 billion in December — the largest in the country — after it raised Sh12.5 billion in a rights issue in 2010. KCB also received a Sh9.6 billion loan from the World Bank’s private lending arm, International Finance Corporation, to support its regional mortgage lending business.

“Banks identified access to long-term funds as the most important impediment to the growth of their mortgage portfolio,” the Central Bank of Kenya (CBK) noted in a survey report released in 2010. “Overlapping constraints of low level of incomes/informality and credit risk were listed as second and third respectively with high interest rates also being regarded as a major constraint.”

Lenders rely heavily on expensive short-term funds, which are misaligned with mortgages whose tenor usually exceed 15 years. A larger asset base allows banks to increase the size of an individual loan, a critical factor in tapping into mega real estate projects.

Last week, Housing Finance rolled out a current account — which is interest-free — to lower its cost of funds.

The company raised Sh7 billion from a seven-year corporate bond in 2010 to boost its lending muscle and managing director Frank Ireri has said the firm is seeking long-term finance to further enable it to lend more.

Rival banks have ridden on their financial muscle to eat into the market share of the mortgage-focused Housing Finance, with increased competition in the sector forcing down interest rates in recent years.

The company used to be the single-biggest mortgage firm until 2009 when its Sh15.1 billion portfolio was overtaken by KCB’s Sh15.6 billion. CFC Stanbic Bank also saw its market share drop to eight per cent last year from 13.6 per cent in 2009 despite raising its mortgage book to Sh6.6 billion from Sh6.1 billion in the same period.

“We are seeing a slow down in new mortgage applications primary due to the high interest rates,” says Mr Elly Odhong, head of retail banking at CFC Stanbic.

Barclays’ market share rose marginally to 7.2 per cent from 6.5 per cent as its loan portfolio nearly doubled to Sh6 billion from Sh2.9 billion.

Central Bank governor Njuguna Ndung’u said the number of mortgage accounts rose to 17,000 as of last December from 13,803 in June 2010, signalling increased activity in the property market that is benefiting the lenders.

Rapid urbanisation, population growth and expansion of the middle class are the key drivers of the property market, which has, however, come under threat from the high interest rates.

Lenders charge between 19 and 25 per cent interest on mortgages, up from a low of 12 per cent in mid 2010. The change is attributed to a tight monetary policy.