Private sector credit to stay low as bank rate capping law bites

The volume of private sector credit is projected to remain subdued in coming months as banks continue to feel pressure from the rate capping law.

Analysts at ICEA LION Asset Management said the development is likely to depress business activity and in turn economic growth.

“Private sector growth has been limited as credit to this cluster declined in 2016, a trend which is likely to continue due to the recently passed Banking Act which has made access to credit harder among most businesses as banks limit lending to the government and high quality borrowers,” said ICEA LION Asset Management CEO Einstein Kihanda in a new outlook note.

Mega projects

Private sector credit growth slowed down for the better part of 2016, touching a low of 4.6 per cent for the year ending October 2016 from 19.5 per cent recorded over a similar period in 2015.

“We view the recently passed Banking Act as detrimental to private sector growth, which remains a major contributing factor to the country’s GDP. We expect to see the full effect of the Act in the fourth quarter banking results,” said Mr Kihanda.

He noted that the economy is likely to face further headwinds as inflationary pressures grow and the shilling weakens.

The firm, however, said that Kenya is likely to record a five per cent to 5.5 per cent economic growth rate this year, buoyed by increased investment in infrastructure as the government aims to complete some of its mega infrastructure projects ahead of the August General Election.