Credit growth falls for the eighth month on rate cap

Growth of credit to the private sector fell for the eighth straight month in May following the introduction of the law capping rates in September last year.

Fresh banking sector data compiled by the Central Bank of Kenya (CBK) shows the growth of credit to the private sector fell further to 2.1 per cent over the 12 months to May this year down from the 2.4 per cent recorded in April.

CBK estimates that 60 per cent of the credit to the private sector goes to real estate, manufacturing, trade and personal loans.

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According to the CBK data, private sector credit growth fell progressively in the eight months since September last year standing at 4.7 in September, 4.7 per cent (October), 4.6 per cent (November), 4.3 per cent (December), 4.2 per cent (January), 3.8 per cent (February) 3.3 per cent (March) and 2.4 per cent in April.

The fall coincided with a slowdown in the economic growth in the first quarter of this year as the economy expanded by 4.7 percent, down from 5.9 per cent in the same period of 2016.

The Kenya National Bureau of Statistics earlier said the quarter’s growth was negatively affected by drought caused by failure of the 2016 short rains and delay in the onset of the 2017 long rains.

A slowdown in credit uptake also dragged down economic growth during the period under review.

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The Central Bank, however, said on Tuesday it expects economic growth to pick up this year with Governor Patrick Njoroge noting that key sectors of the economy apart from agriculture have shown resilience.

“That (Quarter 1 economic growth) does not appear to be a very strong performance. On the face of it there is reason for concern; however we need to note agriculture was depressed and that was the impact of the drought,” said Dr Njoroge.

He said non-agriculture sectors showed significant momentum defying the rate cap.

“If agriculture performed like in quarter one of 2016, the quarter one 2017 growth rate would have been 6.1 per cent. This tells us that the non-agricultural sectors were doing much better than anticipated, and that shows remarkable resilience,” he said Tuesday.

These sectors are mining and quarrying, transportation, real estate, manufacturing and trade.

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“This dynamism was reported even with the credit slowdown. If the credit slow down would not have been reported it would have even more dynamic.

The point here is that there is a lot vibrancy and dynamism in our non-agricultural sectors,” said Dr Njoroge.