Boost for medium, small firms as loan rates reduce


The Central Bank of Kenya in Nairobi. FILE PHOTO | NMG

Average lending rates to micro small and medium enterprises reduced in the last quarter of last year on increased optimism after the electioneering period.

Data published by the Central Bank of Kenya (CBK) reveals that commercial banks on average advanced loans to businesses at 13.35 percent in the quarter to December from 13.74 percent in the preceding quarter.

Economic uncertainties brought about by the 2022 August general elections led to a credit squeeze as banks reduced lending to the private sector to avert loan losses.

“Increased optimism was attributed to continued resilience of the private sector and the impact of government interventions both of which are expected to support employment and growth,” said CBK earlier in the year.

Private sector credit growth had slowed to 12.5 percent in August from 14.2 percent in July which was the highest since March 2016 when it stood at 14.8 percent.

Loan pricing to businesses however remains higher than the rate given to households and cooperates according to the CBK data.

The differentials in loan pricing across the categories are largely a result of the difference in risk levels across the different bands.

Smaller businesses are perceived to be riskier compared to large companies which borrow against their assets or have higher cash flow.

Households who borrow mostly against their pay slips, got credit at 13.27 percent, the best rate of the three categories falling from 13.42 percent in the previous quarter.

Big corporations were given credit at 13.3 percent, also a 0.39 percentage point drop from 13.69 percent in the three months to September.

The average lending rate for the year rose to 12.31 percent from 12.08 percent in the year before as the market adjusted to the impact of high inflation, increased domestic borrowing by the government and implementation of risk-based lending by banks.

Return on the one-year treasury bill averaged 9.9 percent last year having risen from 8.5 percent in 2021 and has since risen to 10.6 percent, the highest in four years.

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