A new analysis by Cytonn investments has projected that the Kenya Mortgage Refinancing Company (KMRC) is likely to come under challenges in the Kenyan market, for its 5.0% lending rate.
The analysis said that KMRC is likely to face challenges raising funds through bonds as a result of competition from government instruments as they are offering much higher rates than the 5.0%.
To lend at 5.0%, the green bond will have to be issued at a relatively low rate which is likely to make it unattractive to investors noting that Acorn’s green bond was issued at 12.3% and attracted 85.0% subscription.
KMRC recently announced a partnership with the African Development Bank that will enable it to issue a bond in 2021.
According to Cytonn, the lending rates set by KMRC at 5.0% to 7.0% may prove difficult to sustain by the organization going by the current market rates. KMRC has recently said that it will let the interest rate float while advising lenders who obtain funding from the facility to keep rates at single digits.
The analysis also points to the rigid requirements set by the World Bank which requires that lenders applying for concessional funding from KMRC have at least 80.0% of the loans within the affordable housing threshold to create a balance between the affordable and non-affordable housing loans.
The result has been that more than three-quarters of loans that were submitted by Primary Mortgage Lenders (PMLs) to KMRC in the first phase of refinancing did not meet the stringent World Bank requirements.
Further, prolonged processes in government departments due to high levels of bureaucracy and delays in processes such as approvals, registration of properties and title deeds are likely to slow down the operations of KMRC.
In addition, KMRC will have to deal with the recent rise in default trends in the face of tough economic times should.