No let-up in credit crunch as banks seen keeping off risks

Private sector credit growth is unlikely to record meaningful recovery before end-year even after firms move on from the election-induced caution, analysts at investment bank Kestrel Capital say.

The macroeconomic outlook report for the second half of the year says the Central Bank is unlikely to move the base rate this year. The rate cap is also unlikely to be reviewed in the short term, meaning banks will continue keeping away from risky borrowers.

The rate of private sector credit growth dropped to 2.1 per cent in May, the lowest in more than a decade. The growth has fallen every month since the beginning of last year, hitting single-digits.

“While we believe that some banks will seek to accelerate lending to the private sector somewhat following the completion of the August 2017 elections, demand for credit remains uncertain,” said Kestrel in the report.

“Furthermore, we believe that any increase in private sector lending will be offset by principal amortisation of existing loans. Thus, at best, we anticipate seeing mid-single digit loan book growth as at end of 2017.”

READ: CBK acts on credit squeeze after rate cap introduction

Kestrel does not expect to see a reversal of the interest rate cap regime before the end of the year, largely on account of a “slow moving legislative process”.

The lack of recovery on credit growth would have a negative effect on the economy, which was already showing signs of slowdown going by the first quarter numbers.

The GDP growth rate slowed to 4.7 per cent in quarter one 2017, compared to 5.9 per cent in the same period of last year. The Central Bank considers a 12 to 15 per cent growth of lending ideal for robust economic expansion.