Banks see rebound in lending on declining interest rates in Kenya
Central Bank of Kenya (CBK) says banks expect short term credit and major strategic projects such as public-private partnerships to drive the uptake of credit next year.
Most banks expect the demand for credit in the private sector to start recovering on the back of the falling of the central bank rate (CBR) and the stabilisation of the Kenya shilling.
Latest Central Bank of Kenya (CBK) market perceptions survey capturing market perceptions of bank CEOs and senior officers in November found that 74 percent of the respondents anticipate a moderate increase in the demand for loans in the first quarter of next year while only three percent expect a decrease in the same period.
Six percent of those surveyed said they expect a strong increase in private sector credit in 2025 while 17 percent foresee a slight increase.
“Respondents anticipated that improving macroeconomic conditions including the stable currency and a reduction in the CBR would result in lower average lending interest rates and improve on credit uptake,” said CBK in the survey.
If banks step up the pace of lending to the private sector, it will mark a reversal from the general trend that has been witnessed this year where the pace slowed down, touching near zero in October.
CBK noted that slowed private sector credit growth was mainly attributed to high lending interest rates, cautious lending by banks due to increased non-performing loans, decline in business profitability and activity which has reduced the need for credit for expansion and high taxation which has reduced disposable incomes.
The regulator says banks expect short term credit and major strategic projects such as public-private partnerships to drive the uptake of credit next year.
“Economic recovery, infrastructure development, and major strategic projects, such as public-private partnerships, are projected to fuel credit demand in the construction, transport, and energy sectors,” added CBK.
The survey targeted CEOs and other senior officers of 354 private sector firms comprising 38 commercial banks, 14 microfinance banks (MFBs) and 302 non-bank private firms, including 84 hotels.
The growth in lending by banks to the private sector fell to a 22-year low of 0.4 percent in September with the expansion in households and businesses slowing for nine consecutive months. The moderated outlook on credit growth is partly due to the elevated defaults on loans.
The CBK cut its base lending rate earlier in the month to 11.25 percent with the hope it would stimulate lending.
“Respondents identified the high nonperforming loans (NPLs) as a potential risk to private sector credit in 2025, primarily due to tight requirements adopted by banks, which discourages prospective borrowers from taking on additional loans,” added CBK.
It also cut volumes of non-performing loans for banks.
Overall, CBK has this year lowered the CBR by 1.75 percentage points compared with last year when it hiked the figure by 3.75 percentage points.
This saw the Kenya Bankers Association (KBA) announce its members would begin lowering lending rates, a move aimed at easing access to credit and supporting Kenya’s economic recovery.
A third of respondents (33 percent) expect demand for credit to be very high in the transport, services, real estate and building and construction sectors.
About a fifth expect demand for loans to be highest in manufacturing (27 percent) and agriculture (25 percent) next year and seven percent in tourism.
