Capital Markets

Private sector lending up 8pc as demand increases

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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • Credit to the private sector expanded in June, indicating a pick-up in demand and reversing a slowdown recorded in the three months to May.
  • Private sector credit grew at an annualised rate of 7.7 percent compared to 6.8 percent in April.
  • The growth is still below 2020’s average of 8.14 percent and below the CBK’s target of 8.5 percent at the end of June 2021.

Credit to the private sector expanded in June, indicating a pick-up in demand and reversing a slowdown recorded in the three months to May.

Private sector credit grew at an annualised rate of 7.7 percent compared to 6.8 percent in April. The growth is still below 2020’s average of 8.14 percent and below the CBK’s target of 8.5 percent at the end of June 2021.

The Central Bank of Kenya (CBK) has attributed the improvement in the last months to increasing economic activities and demand of the State-backed Credit Guarantee Scheme the government launched last October to cushion the small and medium enterprises (SMEs) from the impact of Covid-19.

The highest growth was recorded in sectors such as manufacturing at 8.1 percent year-on-year credit growth, transport and communications at 11.8 percent and consumer durables (23.4 percent).

Lending to the sectors increased by Sh32.2 billion, Sh28.7 billion and Sh59.3 billion over the year.

“The number of loan applications picked up in June, reflecting improved demand with increased economic activities.

“Progress was noted with regard to lending under the Credit Guarantee Scheme,” said CBK.

The scheme was allocated Sh12 billion in the current financial year. The government covers up to 25 percent of the loan capped at Sh5 million disbursed through seven banks.

Commercial banks expect increased credit extension this year pegged on recovery in economic activity in key sectors such as manufacturing, transport and trade, according to CBK’s market perception report

This was attributed to the easing of Covid-19 restrictions, the continued rollout of vaccinations, and expectations of lower credit risk as business operations improved.

However, the risk of a rise in inflation due to rising oil prices and higher taxes is expected to push the cost of living upwards and reduce the disposable income and, consequently, the ability to service loans.

Analysts have also said the increased domestic borrowing target by the government in the current fiscal year may crowd out the private sector saying the “outlook remains bumpy”.

“The guidance from the apex bank regarding approval of banks’ risk-based pricing models has been open-ended, and that being the case, we expect cautiousness in credit mediation to the private sector,” Genghis Capital said in their Weekly Strategy note.