- Loans worth Sh1.63 trillion restructured by December last year
- Inflation rose to 5.6 per cent in December compared to 5.3 per cent in November
Image: FILE
The Central Bank's Monetary Policy Committee (MPC) on Wednesday retained the base lending rate at seven per cent for the sixth consecutive time on accommodative policy stance and stable inflation.
According to CBK, inflation remains well anchored with Month-on-month overall inflation standing at 5.6 percent in December 2020 compared to 5.3 per cent in November. This is within the set limit of 7.5 per cent.
''The inflation rate is expected to remain within the target range in the near term, supported by lower food prices and muted demand pressures,'' the MPC said.
It added that the recently introduced tax measures are expected to have a modest impact on overall inflation.
The apex bank has attributed economic stability to policy measures deployed since March 2020 to mitigate the adverse economic effects and financial disruptions from the pandemic.
The January 2021 MPC Private Sector Market Perceptions Survey revealed expectations of strong economic activity over the next two months, and greater optimism on the economic prospects in 2021.
Respondents attributed the improvement largely to the reopening of all learning institutions, expectations of acquiring a Covid-19 vaccine and the implementation of the Economic Stimulus Programme by the Government.
Other factors include the resumption of most businesses that had stalled due to the pandemic and strong agricultural production.
The Survey of hotels and flower farms conducted between January 13 and 15, showed continued recovery from the disruptions in April and May.
In particular, 97 per cent of the respondent hotels are now open, compared to 96 per cent in November 2020 and 35 per cent in April, with continued re-engagement of employees particularly during the festive season in December.
Average bed occupancy was reported at 26 per cent in December 2020, compared to 11 per cent in April.
All respondent flower farms indicated that they are now operational, while employment and export orders for flowers have improved and are now close to pre-Covid-19 levels.
Respondents also indicated that orders for flower exports over the next four months are expected to remain strong, but with a risk of potential disruptions from a tightening of Covid-19 containment measures in key markets.
Exports of goods have rebounded, growing by 3.3 per cent in 2020 compared to 2019.
Receipts from tea exports rose by 10.1 per cent in 2020, largely reflecting increased output.
The volume of horticulture exports also rebounded, growing by 27.7 per cent in 2020 compared to 2019, with the resumption of demand in the international markets and the availability of adequate cargo space.
The recovery in the volume of flower exports from the sharp contraction in April has been sustained, growing by 37.9 per cent in December 2020 compared to December 2019.
Imports of goods declined by 12.5 per cent in 2020 compared to 2019, mainly reflecting lower imports of oil products due to relatively low international oil prices.
Receipts from services exports remained subdued, reflecting weaknesses in international travel and transport.
Remittances remained strong at a record $299.6 million about (Sh32 billion) in December 2020, and at $3.094 billion about (Sh310 billion) were 10.7 per cent higher in 2020 compared to 2019.
The current account deficit is now estimated at 4.8 per cent of GDP in 2020, and projected at 5.1 per cent in 2021, partly reflecting the expected pickup in imports.
The CBK foreign exchange reserves, which currently stand at $7.7 billion, (4.72 months of import cover), continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market.
According to CBK, the banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios.
The ratio of gross non-performing loans (NPLs) to gross loans stood at 14.1 percent in December compared to 13.6 percent in October.
Loan default increases were noted in the transport and communications, trade, real estate and agriculture sectors.
The increases in NPLs were attributable to the subdued business environment, and banks continue to make provisions.
Total loans amounting to Sh1.63 trillion have been restructured (54.2 per cent of the total banking sector loan book of Sh 3 trillion) by the end of December, in line with the emergency measures announced by CBK on March 18 to provide relief to borrowers.
Of this, personal and household loans amounting to Sh333 billion (39.6 per cent of the gross loans to this sector) have had their repayment period extended.
Of the Sh35.2 billion that was released by the lowering of the Cash Reserve Ratio (CRR) in March, Sh32.6 billion (92.7 per cent) has been used to support lending, especially to the tourism, trade and transport and communication, real estate, manufacturing and agriculture sectors.
Growth in private sector credit stood at 8.4 per cent in the 12 months to December 2020, as demand recovered with the improved economic activity.
Strong credit growth was observed in the following sectors: manufacturing (12 per cent), transport and communications (13.6 per cent), agriculture (15.3 per cent), real estate (8.7 per cent) and consumer durables (18.1 per cent).
''The operationalisation of the Credit Guarantee Scheme for the vulnerable Micro Small and Medium sized Enterprises (MSMEs), will de-risk lending by commercial banks, and is critical to increasing credit to this sector,'' CBK said.
The committee said it will continue to closely monitor the impact of the policy measures so far, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary.