Kenyan economy recovers as firms take up loans

Kenya’s private-sector borrowing hit a two-year high in the first four months of 2014, growing by an average of 25pc. TEA Graphic|Photo/FILE  Nation Media Group

By SCOLA KAMAU Special Correspondent

In Summary

• Increased credit appetite will thus come as a relief to the government as it seeks to meet its economic growth target of 5.8 per cent.
• Experts fear Kenya may not achieve the 5.8 per cent growth target set by the government this year.

Kenya’s private-sector borrowing hit a two-year high in the first quarter of the year, driven by falling interest rates and increased credit appetite from the country’s corporate sector.

 

According to the latest data from the World Bank, private-sector borrowing expanded by an average of 25 per cent in the first four months of the year, well above the Central Bank target of 20 per cent and clear of the country’s 2013 credit growth target of 17 per cent.

The last time credit expanded by 25 per cent was in March 2012.

The growth saw the country’s banking sector extend loans worth Ksh327 billion ($3.76 billion) in the year to April or nearly 2.5 times the Ksh127 billion ($1.46 billion) that the lenders extended in the same period last year.

READ: Kenyan lending rates hit a 3-year low, bankers project further falls

Private sector credit grew 23.9 per cent in the 12 months to April 2014, compared with 10.5 per cent in the period to April 2013.

The high credit appetite was fuelled by falling interest rates, which have hit a three-year low, and are expected to go down even further as the government keeps out of the local bond market, having raised $2 billion from the international market through a Eurobond. (See video)

Data from the Central Bank of Kenya (CBK) and the Kenya National Bureau of Statistics (KNBS) shows average lending rates fell to 16.49 per cent in April — a rate last seen in June 2011 — on the back of easing inflationary pressure, increased competition in the loans market and growth in the economy.

The increased credit appetite will thus come as a relief to the government as it seeks to meet its economic growth target of 5.8 per cent, up from last year’s growth of 4.7 per cent.

The uptake of loans is likely to offer relief to Treasury mandarins keen on stimulating economic activity, which in recent months has suffered from a series of setbacks including falling tourist numbers and declining tea earnings — the country’s major foreign earner.

Vimal Shah, Kenya Private Sector Alliance chairman, said the increased lending was a sign of economic recovery, which is expected to continue despite the existing hurdles.

“East Africa is becoming a hub and long-term investors seeking to get returns in 10 or 20 years to come will continue borrowing. Lending to the private sector will rise,” said Mr Shah, adding that the confidence has been reconfirmed by the recently oversubscribed bond.

Private sector

However, Polycarp Igathe, chairman of the Kenya Association of Manufacturers, said that while increased borrowing could be a sign of growth, it could also be an indicator that businesses are struggling.

“The private sector is investing to grow. However, it may also mean a cash crunch or working capital constraints. As you know, the government owes the private sector a lot of cash in VAT refunds,” said Mr Igathe.