Declining private sector loans is a concern – Rotich

The National Treasury Cabinet Secretary Henry Rotich during the signing of a grant for humanitarian assistance to the Kenyan people by the Chinese at The National Treasury on 27/03/2017.Photo Faith Mutegi:Photo Courtesy

Declining private sector loans is a concern – Rotich

The National Treasury is worried about the persistent slowdown in credit to the private sector, CS Henry Rotich told reporters in Nairobi yesterday.

Rotich said the government has and continue to keenly monitor the impact of the Banking (Amendment) Act, 2016, on credit growth with a view to ensuring it does not hurt growth in the economy.

“We have seen a credit slowdown. The mwananchi (citizen) we were targeting with the law is now suffering . We will address the challenges as we continue with reforms,” Rotich said.

Private sector credit growth fell to 4.3 per cent in December 2016 compared to more than 17 per cent a year earlier, official data from the Central Bank of Kenya have shown. This is largely due to rising loan default rates and the interest cap law enforced last September, the banking regulator said on January 30.

Rotich said Treasury is ready to hold consultations with commercial banks aimed at improving the lending environment, which the banks have termed as risky hence slow down in loans.

The Kenya Bankers Association, the industry lobby, last week warned that credit to households, manufacturing, trade and building and construction is likely to fall below four per cent.

KBA CEO Habil Olaka said the slow growth in credit to the private sector is likely persist going into the second quarter of the year (April-June), as lenders continue to prefer risk-free government securities and assets with higher returns.

Treasury PS Kamau Thugge said although the slowdown in lending started in 2015, the new law has had a major impact because banks have shunned “high-risk” borrowers loans like micro enterprises.

“There has been a sharp decline which we are willing to sit down with banks and other regulators to address,” Thugge said.

The amended law has capped lending rates at four percentage points above the prevailing 10 per cent Central Bank Rate (considered risk-free).

Olaka said although the banking industry share the government’s goal of affordable interest rates on loans, the amended law has failed to achieve its purpose.

President Uhuru Kenyatta also raised concerns over the credit squeeze during his state-of-the nation address on March 15.

“Our SMEs are complaining that they do not have access to credit in spite of the fact that the cost of credit in Kenya is the most affordable in the region after the capping of commercial bank interest rates in September last year,” Uhuru said.

The International Monetary Fund in January also called for removal of the interest controls.

IMF said that while the rate caps are manageable short-term, they could destabilise the financial services sector long-term.

Upstart investment firm, Cytonn, has also warned that the declining growth in credit to the private sector is likely to hurt the projected six per cent growth in the economy.

Source: The Star