Capital Markets

Banks step up private lending as T-bonds fall

Central Bank of Kenya
Central Bank of Kenya. FILE PHOTO | NMG 

Credit to the private sector has grown at the fastest since the 2016 imposition of rate caps, signalling enhanced lending by banks.

Private sector credit grew by 6.3 percent in the 12 months to August, compared to 6.1 percent in July, according to latest CBK data. The highest growth was seen in July 2016 when private sector credit grew at seven per cent but the rate has since been depressed.

Head of Research at Sterling capital Renaldo D’Souza said banks are turning back to the private sector as low returns from government paper pressure earnings and the Treasury pushes its luck by stretching the tenure of its debt issues.

“The Government has over the last few months issued long-term debt, mainly 15-year bonds as part of its bid to lengthen the maturity profile of public debt and thus make it more manageable. Banks, however, prefer shorter term debt, say five to 10 years. In the absence of preferred maturity debt, the financiers have looked at alternative investment options amongst them private sector lending,” Mr D’Souza said

The reversal of fortunes comes at a time MPs voted to retain the rate capping in the Finance Bill 2019, which the government wanted to be removed.


Mercyline Gatebi-Kyalo, head of research at Nairobi-based brokerage house, Kingdom Securities, said following the retention of the rate cap, she expects banks will want to lend more to the private sector and participate less in the secondary market trading of government securities.

Lobbies, including the Kenya Bankers Association, calling for the removal of the cap base arguments on the decline of credit to private sector, which failed to respond to central bank rate (CBR) remaining at 9 per cent for 14 months

CBK Governor Patrick Njoroge in the monetary policy committee (MPC) statement attributed the upturn in lending to innovative products.

“The uptake of credit particularly by Micro, Small and Medium Enterprises (MSMEs) is expected to increase as innovative new credit products in the banking sector become fully deployed,” Dr Njoroge said.

Mr D’Souza said an analysis of the loan books of KCB, Equity and Co-op shows growth supported by the rapid growth of mobile lending as well as personal /household/retail lending as the lenders achieve better management of dud loans.