CBK projects double digit growth in loans to private sector


File Photo of the Central Bank of Kenya.
File Photo of the Central Bank of Kenya.

In Summary

  • The expectations on private sector credit growth have been tipped at a nominal 11.8 percent for the year anchored on the November’s repeal of interest rate caps and the consecutive trim on the Central Bank Rate (CBR) to 8.25 percent on Monday.
  • A double digit return of private sector credit will mark the first notable servicing of local businesses by banks since the pre-interest cap era when credit absorption for instance stood at a high 25 percent in mid-2014.
  • Private sector credit growth closed out the year at 7.1 percent having eased from 7.3 percent in November.

The Central Bank of Kenya (CBK) expects bank loans to the private sector to eclipse the double digit confidence ceiling in 2020 buoyed by a progressive policy stance.

The expectations on private sector credit growth have been tipped at a nominal 11.8 per cent for the year anchored on November’s repeal of interest rate caps and the consecutive trim on the Central Bank Rate (CBR) to 8.25 per cent on Monday.

“This is in the context of both policy and interest cap repeal,” noted CBK Governor Patrick Njoroge.

Nevertheless, the CBK boss expects a slow winding recovery in new lending by commercial banks under the new credit pricing regime as results of the last policy translation remain under review.

“Any transmission of policy takes time. It would be as it were in a marathon where you would not put 100 per cent effort when you start running,” he said.

Private sector credit growth closed out the year at 7.1 per cent having eased from 7.3 per cent in November.

The less than desired credit recovery in the immediate repeal of interest rate caps is in part attributed to credit write-offs as commercial banks fought off Non-Performing Loans (NPLs) to see the combined industry exposure narrow to 12 per cent from a higher 12.3 per cent in October.

Meanwhile, top absorbers of credit in the period remained in the broad trade, manufacturing and transport sectors behind investments in consumer durables whose uptake peaked at 26 per cent in December.

A double digit return of private sector credit will mark the first notable servicing of local businesses by banks since the pre-interest cap era when credit absorption stood at a high 25 per cent in mid-2014.

On the other hand, businesses can find confidence of credit translation from the tighter grip of commercial banks’ lending activities by the reserve bank following the enactment of the 2018, Banking Sector Charter in March which spells out credit pricing and reporting terms.

Nevertheless, domestic borrowing may feature as an impediment to full recovery even as the CBK dissolves past crowding out fears on expected adjustments to the domestic borrowing framework.

Tasked on the possibility of further monetary easing, the CBK governor passed up the opportunity to signal further policy accommodation.

“I don’t have a crystal ball. I would recommend we cross the bridge when we get to it,” he said.

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Story By Kepha Muiruri
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