Kenyan banks have continued to cut their lending to the private sector amidst the high interest rates that saw defaults on loans reach an 18-year high, reflecting the increased borrowin costs.
Latest data released by the Central Bank of Kenya (CBK) shows that outstanding loans owed to commercial banks dropped by 1.5 percent, or about Sh61 billion, in the two months to June, coming on the back of a series of drops over the last six months that have seen gross loans fall by a cumulative of close to Sh200 billion.
This came amidst a rise in interest rates on retail loans, which went as high as 26 percent in February, causing defaults to hit an 18-year of over Sh640 billion, or at about 16.1 percent of gross loans in April this year, triggered by CBK’s high policy lending rate.
New loans extended by banks to the private sector have also recorded the slowest growth in five years, posting a measly 4 percent increase in June, compared to 4.5 percent in May, levels last seen in February 2018.
This has been the trend over the last year, coming as the CBK effected a series of policy lending rate hikes, hitting 13 percent in December last year, the highest level in over 12 years.
The high Central Bank Rate (CBR), which is the base for monetary policy operations including managing inflation, had put banking sector credit out of reach for many Kenyans, who increasingly lost appetite for new loans. The CRB was cut to 12.75 percent yesterday, with CBK saying inflation had fallen and the exchange rate stabilised.
Last year, Kenyans closed more than 1.5 million loan accounts, the first drop in over five years, an indication that people increasingly shunned credit in the face of the high interest rates.
On Tuesday, the apex bank lowered the base rate for the first time in four years, on account of the easing inflation, stable shilling, and a positive macroeconomic outlook, handing borrowers a reprieve in loan-servicing costs.
Already, the amount of non-performing loans (NPLs) has dropped, perhaps in anticipation of the lower rates that were expected amidst improving fiscal and monetary conditions over the last few months.
“Decreases in NPLs were noted in the real estate, manufacturing, trade and building, agriculture and transport and communication sectors. Banks have continued to make adequate provisions for the NPLs,” CBK said in a statement following the latest Monetary Policy Committee (MPC) sitting on Tuesday.
Private households have been the most affected by the high interest rates and have been at the forefront of cutting borrowing from commercial banks over the last year, even as hard-pressed businesses continue to borrow.
In December last year, outstanding loans owed by private households fell by Sh13 billion, a rare drop coming on the back of the jumbo policy rate hike of 2.5 percentage points in the same month.
