Economy

Private sector lending rises fastest in five years

cbk

The Central Bank of Kenya. FILE PHOTO | NMG

Summary

  • Data published by the Central Bank of Kenya (CBK) revealed total claims on the private sector to commercial banks had increased to Sh3.26 trillion in March.
  • The 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.

Commercial banks pumped a fresh Sh317 billion into private businesses in the 12 months to March this year, pushing the private sector credit growth to a five-year high of 10.8 percent.

Data published by the Central Bank of Kenya (CBK) revealed total claims on the private sector to commercial banks had increased to Sh3.26 trillion in March compared to the Sh2.94 trillion that was outstanding at the end of March last year.

The 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.

“Loan applications and approvals have been strong reflecting improved demand with increased economic activities,” said the CBK in its monetary policy statement in March.

The CBK monthly economic indicators revealed that the transport and communications sector was the biggest recipient of new credit from banks growing at 24.1 percent in February and 20.7 percent in January.

The sector had previously reported the second biggest growth in bad loans last year behind real estate, growing by 10.8 percent (Sh4 billion) to close the year at Sh42.2 billion.

Other sectors that were big recipients of fresh credit were trade (8.9 percent) and consumer durables (14 percent) and business services at 11.6 percent.

During the rate cap era credit to the private sector, credit fell to a record low of 2.4 percent in January 2018 as banks cut loans to small businesses, in a period when the country was also coming out of the 2017 elections.

The growth in credit uptake comes at a time of recovery following almost two years of measures meant to slow the transmission of the coronavirus.

Kenya’s economy expanded by 7.5 percent last year driven by robust growth in the manufacturing and accommodation sectors. Which were among the sectors hardest hit by the pandemic control measures.

During the last Monetary Policy Committee meeting, CBK remained optimistic of a continued recovery despite the ongoing Russia-Ukraine conflict that has led to commodity supply disruptions.

“The economy is expected to remain resilient supported by recovery in agriculture and continued strong performance of service sector despite the downside risks to global growth in 2022,” said the CBK.

[email protected]