Private sector credit growth slumps to 13-month low

Credit to the private sector dropped to a 13-month low in March, reflecting the persistent uncertainty in the business environment as the Covid-19 pandemic continues to take its toll on the economy.

A depository-corporation survey by the Central Bank of Kenya (CBK) shows that private sector credit grew at an annualised rate of 7.65 per cent in March-- the slowest since February last year’s 7.60 per cent.

Analysts project that the growth in private sector credit could remain subdued in the quarter from April on the risk of non-performing loans (NPLs) and preference to lend to the State through government securities.

“There may be a risk of higher NPLs impacting robust credit mediation. Credit to the private sector may also decline with crowding out by government debt with expectations of increasing domestic borrowing. Banks may prefer lending to private sector and more cautious on risky lending,” Genghis Capital head of research Churchill Ogutu said.

CBK data shows that the private sector loan book between February and March stood at Sh2.947 trillion, dropping by Sh532 million, after a Sh27.74 billion growth from January.

The credit growth averaged 8.14 per cent last year as businesses remained cautious about making new investments amid the pandemic.

This came at a time of controls on lending and capital requirements by CBK before payment of dividends after the banks set aside billions of shillings for bad loans.

The amount of credit disbursed in March remained below CBK’s target of 8.5 per cent and a projected double digit growth this year that was tied to an optimistic outlook in the year and pick-up in economic activity year.

CBK governor Patrick Njoroge said in January there were signs of a revival in lending to SMEs, partly due to the operationalisation of the credit guarantee scheme for such borrowers.