Govt Continues To Crowd Out Private Sector In Loans Access

 

By Kepha Muiruri For Citizen Digital

The government has continued to crowd out the private sector access to loans by sustaining its heavy local borrowing program.

An analysis of asset allocation by listed commercial banks through the third quarter to September 2021 by AIB-AXYS Africa mirrors the chokehold with lenders extending allocations to government securities.

During the period covering the analysis, the Cooperative Bank recorded the largest allocations to government securities at 36 per cent.

The top tier banks are similarly earning higher income from lending to the government than in issuing new loans to customers.

Income from government securities during the quarter for instance rose by 21.8 per cent on average compared to a 16.5 per cent growth in interest income from loans.

The apathy in lending to the private sector has been retained in spite of banks sourcing for cheaper funds with the average cost of funds in the third quarter declining to 2.6 from three per cent.

“We are particularly concerned about minimal growth in the loan book as banks preferred to increase their holdings in government securities,” noted analysts at AIB-AXYS Africa.

Nevertheless, banks including KCB and Equity defied the trend to grow their loan books by 12.9 and 23.2 per cent respectively driven primarily by activity in recently acquired regional subsidiaries.

The effect of the crowding out has been demonstrated by the laggard private sector credit growth data which shows the expansion of credit to the real economy in single digits since June 2016.

Further, customer deposits growth continues to outstrip that of loans for the banking industry on average.

AIB-AXYS analysts anticipate the status quo will be maintained with government securities remaining the primary driver to interest income for local banks.

“We expect end year interest income growth to be mainly driven by income from government securities. Private sector credit growth remains muted as the government continues to crowd out the private sector and commercial banks’ risk appetite remains low.”

The continued crowding out is despite initiatives to boost credit to the economy including the operation of the SME Credit Guarantee Scheme and first disbursement of funds to banks from the Kenya Mortgage Refinancing Company (KMRC).