Njuguna Ndung'u: Strengthening the mortgage market in Kenya
Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the official
launch of the Housing Finance Current Account, Nairobi, 20 March 2012.
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Mr. Steve Mainda, HFCK Chairman;
Mr. Frank Ireri, Managing Director, HFCK;
Board Management of Housing Finance here present;
Distinguished Guests;
Ladies and Gentlemen
I am very delighted to join you this evening for the official launch of the Housing Finance
Current Account. The provision of current account is one of the institution's key planks
towards its long term vision of offering a broad range of services to its customers.
Ladies and Gentlemen, allow me first to commend the Board, Management and Staff of
Housing Finance for the introduction of this new product that will go a long way in enabling
the institution access affordable funds. It is noteworthy that since its incorporation in 1965,
the institution has progressively grown in this very specialized market to 11 branches. I also
note that as at January 2012, the institution had an impressive mortgage portfolio of
Ksh.26 billion and customer deposits of Ksh.19 billion, supported by a strong capital base of
Ksh.3.7 billion. In addition, the number of mortgage accounts stood at 5,143, accounting for
about 31% of the total banking sector mortgage accounts. This indeed shows great effort put
in by the Board and staff of Housing Finance. This is the direction we need to strengthen our
mortgage market.
Ladies and Gentlemen, the product being launched today is as a result of the policy
proposals made by the Central Bank in Year 2010 that resulted in the Banking Act being
amended to allow mortgage finance companies to operate current accounts. This initiative
was meant to facilitate attraction of large amounts of low cost customer deposits that would
in turn allow such institutions to increase their lending capacity and expand operations to
meet the growing demand for housing.
The Central Bank, jointly with the World Bank in June 2010, conducted a baseline survey on
mortgage finance in Kenya with the aim of assessing the size and obstacles to the
development of the mortgage finance market. The results of the survey showed that the
country's mortgage finance market has more than tripled over the last five years, from
Ksh.19 billion in 2006 to Ksh.61 billion in 2010, while the number mortgages in the banking
sector grew from 7,580 to 13,803 over the same period, demonstrating great potential in this
sector. However, Kenya's mortgage debt to GDP ratio at about 2.5% is still low compared to
the international standards such as US Market where the ratio is over 70%.
The survey also identified key constraints to the mortgage market in Kenya such as low
levels of income, access to long term funds, credit risk due to absence of historical
information, relatively high interest rates, difficulties with property registration and high
incidental costs of borrowing. However, various initiatives are under way to tackle these
obstacles. These initiatives include issuance of corporate/housing bonds by institutions with
the aim of mobilizing long term resources to match the long-term nature of mortgages and
the roll-out of the credit information sharing mechanism to enable financial institutions
enhance their credit risk management processes.
Ladies and Gentlemen, Kenya has seen rapid urbanization over the last decade with the
proportion of the Kenyan population living in urban areas forecast to reach 60% by the year
2030 from about 20% in 2005. Expanding cities are good for productivity and growth.
However, the Kenyan housing sector is currently characterized by inadequacy of affordable
and decent housing and low-level of urban home ownership.
Despite the challenges, the Housing Sector plays a critical role in the achievement of key
goals envisaged by Vision 2030. Housing construction, being labour intensive and having
strong linkages with other sectors of the economy remains one of the principal levers for
creating jobs and driving economic activity. Mortgage market development will be required to
support the expanding cities with the accompanying productivity gains; but also has to be
accompanied by infrastructure to decongest the cities and create more space for housing.
Ladies and Gentlemen, the Central Bank of Kenya in partnership with the banking sector is
currently focusing on initiatives aimed at reducing costs of doing business for financial
institutions with the main aim of bringing down costs of financial services. In addition to
developing innovative products, the other major initiative towards cost reduction and financial
inclusion has been the introduction of Agent Banking. The CBK has so far licensed eleven
banks to carry out agent banking business and approved 10,335 specific agents since the
roll out in May 2010. The rollout of the agent banking model is mainly aimed at addressing
the challenges of high transaction costs arising from the lack of proximity to financial services
and putting up brick and mortar branches where they may not be economical in all the
corners where customers are to be found. I am delighted to note that Housing Finance has
also obtained approval for agent network from CBK and will in due course be rolling out the
model.
Finally, let me reiterate that the Central Bank will continue to facilitate an environment that
allows for a diverse range of financial service providers to thrive and compete in the Kenyan
market. Specifically, the Central Bank remains committed to working with the relevant
stakeholders to create an enabling environment for the mortgage sector to play its rightful
role in achieving the aspirations of the country's blueprint, the Vision 2030, which includes
providing the country's population with adequate and decent housing in a sustainable
environment. Further, it will pursue better regulation as opposed to more regulation so as to
create room for more innovations by financial institutions and also be ready with effective
tools to deal with any system vulnerabilities and emerging risks. We are happy and proud to
be associated closely with the developments Housing Finance has introduced and the
growth success they have achieved so far.
With these few remarks ladies and gentlemen, it is now my honour and privilege to declare
the Housing Finance Current Account officially launched and we look forward to seeing
better results and innovations from them in the market place with increased capacity and
financial strength due to this launch.
Thank You