LENDING

Double digit private sector credit growth expected in 2020

Private sector credit jumped 7.1 per cent last year

In Summary

•Njoroge said improved lending to private firms was largely driven by write-offs of bad debt and recovery of Non-Performing Loans (NPLs) as well as government's initiative to offset pending bills

•CBK data shows private sector credit growth fell from its peak of about 25 per cent in mid-2014 to 1.9 per cent in January 2018 — its lowest level reported

Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Image: EZEKIEL AMING'A

Private sector credit growth is expected to expand by 11.8 per cent this year, as impact of the the post rate cap regime takes effect.

Central Bank of Kenya governor Patrick Njoroge said the growth will be significant given private sector credit jumped 7.1 per cent last year.

This was observed mainly in the manufacturing sector, which grew 9.2 per cent, trade at 8.9 per cent, transport and communication at 8.1 per cent and consumer durables which recorded the highest growth of 26 per cent.

 

CBK data shows private sector credit growth fell from its peak of about 25 per cent in mid-2014 to a record low of 1.9 per cent in January 2018.

The nosedive was driven by large capital outflows which put pressure on the exchange rate and liquidity in the banking sector in 2015, bank liquidation and receivership as exemplified by Dubai Bank, Chase Bank and Imperial Bank, and the three-year rate cap law stint.

Credit to the government has averaged about 15 per cent as lenders resorted to risk-free Treasury Bills and government bonds at the expense of lending to the private sector during the rate cap regime.

Njoroge said improved lending to private firms was largely driven by write-offs of bad debt and recovery of Non-Performing Loans (NPLs) as well as government's initiative to offset pending bills.

"If there were no write-offs, private sector credit growth would be at 7.4 per cent," Njoroge said.

Commercial banks in the country are on an aggressive run to recover bad debts.

According to CBK, the share of Non-Performing Loans (NPLs) ratio to total loans has reduced significantly to 12 per cent as at December 2019, from 12.3 per cent in October and 12.6 per cent in August with more than Sh7 billion recovered.

 

Njoroge said effects of repealing the interest rate cap law in November were already beginning to be felt in the country, signalled by improved distribution of liquidity in the banking sector.

He said the regulator was working with banks to chart a path to guide lenders on how they would employ risk-based lending post rate cap regime.

“We do not expect banks to go to the same old wild west maneuvering. Banks have to come up with a plan,” Njoroge said.

On Monday, CBK’s Monetary Policy Committee lowered the benchmark lending rate by 25 basis points to 8.25 per cent from 8.5 per cent, a move aimed at boosting lending, especially to the private sector.

Njoroge, however, said it would take some time before the impact of the cut would be felt in the economy.

“By March-April we hope to have had conversations with all banks. You should expect three months before things start to kick in,” he said.