Markets & Finance

Business confidence falls in November on weak credit growth

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Standard Chartered chief economist for Africa Razia Khan. PHOTO | SALATON NJAU

Business confidence among Kenyan firms fell further in November compared to October, according to the latest investor poll by Standard Chartered.

The poll shows business confidence fell to 57.5 in November from 61.3 in October on the back of credit access concerns and high cost of input.

“The fall in sentiment fits our view on the Kenyan economy — weaker credit growth and demand, and potentially higher input prices, have been taking their toll on business activity,” said Standard Chartered chief economist for Africa Razia Khan.

This was the second lowest reading of 2016, despite November being the peak season for demand and production leading up to the holiday period.

Businesses are bracing for the December holidays and many of them are preparing to roll out aggressive consumer campaigns to drive up sales.

According to the investor poll, however, sentiment fell across the board with only one indicator — input prices — rising.

“Firms appeared to be concerned about two key issues; first, the challenging lending environment — while interest rates paid have fallen, credit access dropped sharply after the introduction of a cap on loan rates in September. Second, input prices have risen, signalling higher prices in the months ahead,” explains the poll.

The rate of inflation edged up to 6.68 per cent in November 2016 from 6.47 per cent in October, latest data from the Kenya National Bureau of Statistics show.

The increase was mainly because the food and non-alcoholic drinks index rising by 1.17 per cent.

In the StanChart poll, indicators for new orders, production, order backlogs, employment and supplier delivery times fell and only one of the 15 current conditions indicators (input prices) rose.

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New orders, which indicate domestic demand, fell to 63.9, its lowest level since August. Export orders fell below the physchological 50 level. Production and employment indicators dropped as a result.

Firms said they remained concerned about the lending environment after the implementation of the Banking Amendment Act in September.

The Banking (Amendment) Act 2016, which came into force on September 14, sets the maximum lending rate at four percentage points above the Central Bank Rate (CBR).

The law also sets the minimum returns payable by banks on customer deposits at 70 per cent of the CBR.

The CBR is currently set at 10 per cent, meaning that banks are barred from charging loan interest above 14 per cent.

Firms said they paid lower interest rates in November but said credit was less accessible.

Commercial lending rates fell to the cap of 14 per cent in September from 17.7 per cent in August.