By: MOSES OMUSOLO
The International Monetary Fund (IMF) has warned local financial institutions against over-lending, saying it will gravely affect the economy.
The report said that though other factors that commonly affect debt such as high interest rates may also play a role, numerous studies have credited episodes of unusually high credit growth with poor economic performance.
“Most Sub-Saharan African countries have experienced a decade long rapid increase in private credit. Real credit to the private sector grew five fold over the period 2003-2014-an average annual progression of 16 per cent over 10 years, leading to a doubling of the credit-to-GDP ratio for the region as a whole.”
The report, officially titled Regional Economic Outlook for Sub-Saharan Africa, has found that lending by financial institutions across the board has risen considerably over the last 12 years, attributing it to increased household incomes.
“The ensuing increased financial deepening and inclusion are certainly welcomed, but authorities should be mindful of the increased financial risks associated with excessive credit growth,” the report said.
Moreover, banking penetration has increased by roughly 50 per cent over the last 12 years and is cited as an indicator of a banking crisis in the long run.
Meanwhile, several countries in sub-Sahara Africa have been flagged as having wild lending practices hence requiring intervention.
They include Chad, Comoros, Republic of Congo, Guinea, Guinea Bissau, Mozambique, South Sudan and Togo whose credit to the general population was found to have grown over the last decade by as much as 20 per cent relative to the GDP.
Past Credit Booms
Central African Republic
Democratic Republic of Congo
Sao Tome and Principe
Ongoing Credit booms
Republic of Congo
SOURCE: DAILY NATION