Entrepreneurs are set to drive private sector credit growth this year due to their increased investment appetite.
Central Bank’s Market Perception survey shows small business owners are looking forward to investing in Big Four agenda-related projects this year.
This means they will need to access credit to finance these projects.
Chief executives from 39 operating commercial banks said lending expectations were high in 2019 despite the existing environment of interest caps.
“2019 is expected to be supported by the stable macroeconomic environment and increased economic activity, which are expected to translate to a higher demand for credit from both firms and households,” the report stated.
Since September 2016 when the interest rate cap law was introduced, lenders have been devising new ways to diversify their portfolios to increase income by using low risk investments. This has seen small businesses and individuals left out of the credit pool as they are viewed as high risk borrowers.
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 last year. In 2018, Finance and insurance, consumer durables and business services were the best performers in terms of credit access.
On the other hand, credit to the government has averaged about 15 per cent compared to 2.4 per cent to the private sector reported last December. This means lenders have resorted to risk-free Treasury Bills and government bonds at the expense of lending to the private sector.
Last October had the highest recorded rate of private sector lending since introduction of the rate cap law at 4.4 per cent.
“The removal of deposit rates cap has lessened the strain on cost of funds for banks but interest rate capping and the resultant inability to effectively price risk continues to constrain supply of credit,” the report stated.
According to the survey, lower loan approval rates by banks have slightly dampened demand for credit with some clients opting for mobile loans instead.
Lenders also expect credit business to grow in this month as consumers look to offset education related needs and farmers prepare for the long rains planting season.
“Respondents representing the agricultural sector anticipated a good year for the sector, driven mainly by increased production and lower cost of fuel and electricity,” the report stated.