Market News

Lenders tip CBK rules to spur credit growth

Habil Olaka
KBA chief executive officer Habil Olaka. FILE PHOTO | NMG 

Banks say the relief extended by the Central Bank of Kenya (CBK) to the institutions will go a long way in helping borrowers to survive the impact of the coronavirus.

Kenya Bankers Association (KBA) chief executive Habil Olaka said in an interview the measures by the central bank’s Monetary Policy Committee (MPC) will make it easier for banks to lend cheaply and support economic recovery.

The CBK on Monday cut its benchmark rate by the largest margin in three-and-half years and lowered the statutory deposits banks must hold with the regulator to boost flow of cash in an economy plagued by the pandemic.

The benchmark rate was cut by one percentage point to 7.25 per cent, a pointer of policy bias towards cheaper loans.

The regulator also reduced the cash reserve ratio (CRR) for commercial banks to 4.25 per cent from 5.25 per cent, saying the move will release an extra Sh35.2 billion for lending.


“These measures complement commitment by commercial banks to restructure any existing loans that may be affected by slowdown in business activity during this economic shock,” said Mr Olaka.

While normal operations of businesses and households are expected to be interrupted, the measures would “obviate a total shutdown, hence potentially cushion the economy during these hard times,” he said.

“It is worth acknowledging though that these measures need to be accompanied by interventions from non-lending agencies such as the suppliers and other service providers as well as the national and county governments,” he said.

Credit to the private sector grew by 7.7 per cent in the year to February, compared to 7.1 per cent in the year to December, both below the ideal growth level of between 12 and 15 per cent for supporting economic growth.

Mr Olaka defended banks for the slow growth in credit, noting that the reduction in the CBR “had benefited the existing borrowers since it has lowered their cost of borrowing.”

“It needs to be appreciated that the reduction in the CBR alone cannot lead to increased uptake of credit if the operating environment is challenging,” he said. Post-repeal of the capping law has been characterised by high levels of non-performing loans, which signals a demand challenge on the part of the borrowing public and businesses.”