Kenya's credit market has been overheating in recent months, partly driven by excessive government borrowing from the domestic market. This can be seen from the liquidy shortfalls in some small banks.
The benchmark lending rate in Kenya is now at a seven-year high after it hit peaks last seen in 2016, setting up consumers for another season of costly loans.
The spikes have been driven by recent monetary policy measures such as approvals of risk-based loan pricing combined with competition for cash among players.
But if unchecked, they may trigger a new wave of bank defaults. In anticipation of the spike in defaults, some banks have doubled their provisions for bad debt.
All these will only overheat the credit market. It, therefore, comes as a relief that the government has cut its domestic borrowing target by Sh270 billion, and instead borrow from the international markets. Every effort must be made to cool the credit market.
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