Liquidity ratios dip as banks scale up lending

The Central Bank of Kenya. PHOTO | DENNIS ONSONGO | NMG

Banks' stocks of liquid assets have dipped seven percentage points over the last year to 51.6 percent in July as lenders increased loans to the customers.

Central Bank of Kenya (CBK) data shows liquidity ratios have come down from 58 percent in a similar period last year as private sector credit grew at double-digit rates.

The disbursement of loans to the private sector has grown for eight consecutive months to July, backing the continued recovery of the economy and business confidence following the Covid-19 pandemic.

The 12-month credit growth, however, dipped slightly to 12.5 percent in August, retreating from a six-and-a-half-year high of 14.2 percent that was seen in July.

CBK data shows that over the last year, the sector’s loan-to-deposit ratio—that measures the percentage of deposits given out as loans—has increased from 72.6 percent last year to 76.3 percent in July.

During the 12 months, gross loans rose from Sh3.14 trillion to Sh3.55 trillion against deposits of Sh4.65 trillion.

The liquidity ratio metric is a key indicator of the business environment and the general financial health of businesses at a given period.

Credit uptake has been on an upward trajectory for eight consecutive months, rising from a 27-month low of 5.8 percent last July when Kenya was still in the clutches of Covid-19.

“The number of loan applications and approvals remained strong, reflecting improved demand with increased economic activities,” CBK said in the Monetary policy statement in September.

CBK said strong credit growth was observed in manufacturing (15.2 percent), trade (13.3 percent), business services (16.1 percent, and consumer durables (14.3 percent).

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