Kenyan banks’ exposure to sovereign debt has gone up significantly since 2019 as a result of faster investment in risk-free bonds at the expense of lending to the private sector, with the lenders now holding twice as much of their net assets in government debt.
The Kenya Bankers Association (KBA) said in its recently released state of the banking industry report for 2021 that the high appetite for government paper poses a risk to the recovery of private sector credit growth, especially if the government is unable to institute fiscal consolidation and continues to borrow higher amounts locally.
