Private sector loan growth hit six-year high in February

Investment analysts are predicting that the private sector will gobble up more loans this year than they have done in any of the last five years.

In Summary
  • Last month, loans to the private sector grew 9.7 per cent compared to 9.3 per cent in January
  • Commercial lenders were forced to cut lending in the wake of Covid-19
CBK Headquarters
CBK Headquarters
Image: FILE

The pace of private sector credit growth in Kenya defied Covid-19 jitters to hit a six-year high of 9.5 per cent in February, Central Bank of Kenya data shows. 

This is the highest amount of commercial bank loans going to the private sector since June 2016 when it was marked at 10.1 per cent.

The credit growth to the sector that accounts for nearly 80 per cent of new jobs in the country, however, nosedived after the country passed a law that capped commercial bank loans at four per cent above the CBK rate.

The banking regulator's data shows lending to the private sector remained relatively flat at Sh2.2 trillion ($20.82 billion) in the 12-month period to October 2016 as debate and eventual enactment of the Banking (Amendment) Bill 2016 took center-stage.

Credit to the private sector grew by 24 per cent (Sh348.92 billion or $3.3 billion) from Sh1.48 trillion ($14 billion) in October 2013 to Sh1.82 trillion ($17.23 billion) in October 2014.

Even so, commercial lenders were forced to cut loans in the wake of Covid-19 that saw borrowers run into financial constraints and seek repayment extensions on nearly a third of the loans.

Speaking during the post-Monetary Policy Committee press briefing on Tuesday, CBK governor Patrick Njoroge commended lenders for their vital role in ensuring business continuity by providing much need credit facilities. 

''Credit to the private sector is headed to the pre-interest cap law levels of 2016. I take this opportunity to encourage commercial lenders to continue supporting businesses pressed to the ground by Covid-19 economic,'' Njoroge said. 

In a year’s time since March 2020, banks have restructured loans totaling Sh1.7 trillion. According to CBK- this accounts for 57 per cent of the banking sector’s gross loans.

Investment analysts predict that the private sector will take up more loans this year than they have done in any of the last five years.

In its 2021 economic outlook released two weeks ago, asset management firm, ICEA Lion said it expects lending by banks to pick up  this year, after a long period of stunted credit growth.

“Private sector credit growth has been on a single digit, but for the first time in five years we expect it to hit double-digit in 2021,” said Judd Murigi, the head of research at ICEA Lion.

The growth in credit in February saw the country's private sector performance improve at a solid pace in January, driven by a sharp increase in output and new business.

According to the monthly Purchasing Managers’ Index (PMI) by Stanbic Bank, the sector grew 53.2 during the month under review, up from 51.4 in December the highest reading for three months.

The index points to a sustained improvement in the health of the private sector economy with the seventh consecutive month of growth since the Covid-19 outbreak.

It, however, dropped fractionally last month as businesses panicked over the new wave of Covid-19. 

Yesterday, the Kenya National Chambers, Commerce and Industry asked the government to come up with a stimulus business package to cushion businesses on new Covid-19 containment measures. 

The national business lobby's President Richard Ngatia suggested radical measures that if implemented could for instance see loan moratorium by CBK extended by another year.