Capital Markets

Polls choke credit growth to private sector in August

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Central Bank of Kenya Governor Patrick Njoroge. PHOTO | SALATON NJAU | NMG

Growth in credit to the private sector slowed for the first time this year in August, reflecting a slowdown of business activity around the General Elections period.

The Central Bank of Kenya said on Tuesday that 12-month credit growth stood at 12.5 percent in August, retreating from a six-and-a-half year high of 14.2 percent that was seen in July.

By July, the disbursement of loans to the private sector had been growing for eight consecutive months, backing the continued recovery of the economy and business confidence following the Covid-19 pandemic.

Business activity however slowed down last month as the country went to the polls. While the election was conducted peacefully, it hovered over the economy for an extended period due to a petition in the Presidential election that was concluded on September 5, nearly a month after Kenyans went to the ballot.

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This, therefore, points to the decline in credit growth in August being an outlier, going by sentiments expressed by both the CBK and bank credit officers.

Speaking to newly elected MPs on Tuesday, CBK governor Patrick Njoroge said that lenders still have room to lend more to the private sector.

The approval of more than half of banks’ risk-based loan pricing plans is also seen as a positive for access to loans, especially for small businesses that have been facing borrowing constraints due to elevated risk perception.

“Credit is available. It is true that there are concerns among some of you over (banks’) lending to government and crowding out private sector. That is not true…they still have lending capacity and can lend to you appropriately if you talk to them,” said the governor in a presentation to the MPs.

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Banks, which have been showing a preference for risk-free government lending in the last six years, have also eased back on their appetite for bonds due to concerns over market value losses on the back of rising yields in the secondary bonds market.

The excess liquidity that this unlocks is thus expected to find its way into the private sector, especially now that the lenders have a freer hand in pricing loans.

Credit officers surveyed by the CBK in the second quarter of this year had also expressed optimism about credit growth prospects, citing higher demand for credit in the economy and improved liquidity in the banking sector on higher deposits and loans recovery.

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The sector regulator in its July Monetary Policy Committee (MPC) briefing subsequently pointed to higher loans growth in sectors such as transport and communication, manufacturing, trade and consumer durables reflecting improved demand with increased economic activities.

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