Banks private credit falls below central bank target

Central Bank governor Patrick Njoroge, chairman of the MPC during a briefing on Monday. PHOTO | DIANA NGILA | NMG

By PATRICK ALUSHULA

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Summary

• The mortgage lender reported a 58 per cent drop in profits to Sh37.1 million in the first three months of the year.
• It said Tuesday that the restructuring would result in merger, redundancy and creation of new roles for its recently launched digital banking strategy.
• The group says it has already informed the Central Bank of Kenya (CBK), Capital Markets Authority as well as the Ministry of Labour and Social Protection.

The growth of bank credit to the private sector consistently fell below targeted rates in the first six months of the year, underlining low demand and the impact of rate capping.

In the 12 months to June, lending to the sector expanded by 4.3 per cent against a target of 8.8 per cent, data from the Central Bank of Kenya (CBK) shows.

The CBK target for the year to March was 5.8 per cent, rising to 8.8 per cent by the half year. But in February growth stood at only 2.1 per cent and rose only slightly in April to 2.8 per cent. The targets were set towards the end of last year but not publicised.

However, the data showed the underperformance has been consistent dating back to last year when it was even worse at below two per cent in some months. The CBK is still optimistic that the growth will rise on the basis of the trend in the past few months.

“Private sector credit grew by 4.3 per cent in the 12 months to June, compared to 2.8 per cent in April … Growth in private sector credit is expected to pick up gradually with the continued recovery of the economy,” said the Monetary Policy Committee (MPC), the policy-making arm of the CBK in a statement following a meeting on Monday.

Noting that there was an output gap indicating potential for higher growth existed, the CBK Tuesday projected an economic growth rate of 6.2 per cent this year, higher than the Treasury’s 5.8 per cent.

The MPC cut the policy rate to 9.0 per cent from 9.5 per cent, expecting that this would spur more lending to the private sector. Analysts, however, expressed pessimism on credit growth saying banks were still more inclined to lending to the government rather than to the private sector.

“Normally, this change (reduction in the Central Bank Rate) is expected to increase demand for credit in the general population. However, this remains uncertain due to commercial banks willingness to put their money in alternative assets with higher returns and with less risk attached, like the T-bonds and T-bills (domestic borrowing,” said Standard Investment Bank.