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Today: Jun 13, 2024

Banks hint at sluggish rise of private credit flow.

1 min read

Commercial banks in Kenya are signaling a slow growth of credit to the private sector as they implement heightened interest rates imposed by the Central Bank of Kenya (CBK). This is leading to a decrease in access to affordable loans for individuals and businesses, which could negatively impact the country’s economic growth and revenue collection targets.

The banks are preferring to lend to the risk-free government instead of private sector players, such as manufacturers and agriculture, where the chances of loan defaults are higher. This trend is expected to lead to further shrinking of the real-economy in 2024.

The private sector credit growth in 2023 recorded a mixed performance, with a dip between May and July before growing marginally in October. Banks are now charging interest rates of about 20% per annum, compared to the previous rate of 15%.

This rise in interest rates, along with high taxation and rising operating costs, is likely to lead to a contractionary effect on the economy and discourage investment. Many businesses have already indicated plans to reduce their workforce and production capacity.

The Federation of Kenya Employers (FKE) warned that 40% of its members were planning to further cut their workforce by the end of 2023 in order to survive the tough economy. The Kenyan Revenue Authority (KRA) may also fail to meet its collection targets due to a slowdown in business operations.

Despite these challenges, Kenya’s economy grew 5.9% year-on-year in the third quarter of 2023, thanks to favorable weather conditions.