Commercial bank loans expected to shape economy in 2020 Report

The filtering in of new loans into the economy is expected to shape growth prospects across the year following the freeing up of credit terms under the repeal of interest caps.

In their annual economic outlook, analysts at Cytonn Investment expect easing in private sector credit growth to improve market liquidity unlocking the regressive cash-crunch which characterized the past year.

“Banks will have sufficient margin to compensate for risks and allocate funds away from government lending towards lending,” notes the report in part.

New credit is largely expected to flow into the broad agriculture, manufacturing and real estate sectors as the government remains in pursuit of its four-pillared economic transformation agenda.

The government is once again expected to anchor growth with its expenditure into public infrastructure investments growing by 3.9 percent in the current 2019/20 financial year to Ksh.435.1 billion.

Further to the expected resurgence in private sector credit growth, the continued stay of heavy rains into the New Year is expected to offer supportive spill-over effects to output expansion.

Nevertheless, Cytonn Chief Operating Officer Shiv Aurora warns credit growth will only be gradual as commercial banks remain increasingly wary of risk perversions.

“You generally have to go through credit analysis and other factors to get a bank loan. However we have seen an immediate drop to banking sector subscriptions to government treasuries,” he said.

In 10 months to October 2019, private sector credit growth improved to 4.2 percent from the previous 3.4 percent in 2018 but remained in the distance to the recorded 11.2 percent five year average.

Incidentally, the government may make for the major undoing to 2020 growth prospects, pressed in large part by fiscal stresses.

On one hand, underperformance in revenues is expected to lead to a widened fiscal deficit from the targeted 5.6 percent of Gross Domestic Product (GDP) by the end of the government’s financial year in June while on the other, fiscal consolidation may yield in reduced spending by the State.

Moreover, growing debt obligations including the hiked Ksh.71.4 billion principal redemption to the Chinese Export-Import Bank (EXIM) are expected to pile further pressures to encompass the depreciation of the shilling.

Monetary policy easing however makes for the limited options to output acceleration but for a limited scope.

While the report looks out for another 0.5 percent slash in the Central Bank Rate (CBR) by the close of the year, analyst David Ngugi expects the Central Bank of Kenya (CBK) to hold off excessive cast while drawing reference from the distastefulness of ‘buying a large belt in the expectations of growing in size.

“There is only so much you can do on monetary easing without fiscal prudence,” he said.

Economic growth for 2019 is expected to largely come in at a lesser sum than the projected revision of 5.9 percent with growth in the first nine months of 2019 slacking to an average 5.4 percent on the back of major deceleration to key segments.

Cognizant of further perversion to the 2020 economic outlook which is estimated at six percent by the World Bank, the reserve bank has warned Kenyans to prepare for an even tougher year ahead.

“The bad news is 2020 may prove as challenging (as 2019) but we believe we’re ready and will prove up to the task,” CBK Governor Patrick Njoroge noted in a tweet at the turn of the year.