Kenya: National Treasury has raised concerns over the low level of credit accessible to the private sector, which currently stands at 40 per cent of the gross domestic product (GDP). Cabinet Secretary Henry Rotich said though the financial sector has experienced robust growth over the last five years, credit to the private sector, the engine of economic growth, remains low.
Mr Rotich said this could compromise country’s efforts to attain middle-income status by 2030. “Kenya’s financial sector has been fast growing in the last five years or so. But despite the phenomenal growth, we still see credit to the private sector at around 40 per cent of the GDP, which is way below really what we are aspiring as a middle income country,” he said.
The Treasury boss attributed the low level of credit to the high interest rate regime. He said the difference between the rates banks give to depositors and what they charge the borrowers commonly referred to as interest rate spread is still high in the country.
He was however optimistic that ongoing efforts between the National Treasury, Central Bank of Kenya and the private sector to reduce interest rates would yield fruits. “The introduction of a uniform Kenya Bankers Reference Rate upon which all commercial banks would be required to base their lending rates is a milestone in resolving the interest rate puzzle,” he said.
The high cost of doing business has partly been blamed for the high interest rates. This has left commercial banks weighed down by huge non-performing loans (NPLs). According to CBK, the stock of gross non-performing loans (NPLs) for the banking sector increased by 34.4 percent from Sh 57.5 billion in June 2012 to Sh 77.3 billion in June 2013.
Similarly, the ratio of gross NPLs to gross loans deteriorated from 4.5 per cent in June 2012 to 5.3 per cent in June 2013. The increase in NPLs is attributed to high interest rates and reduced economic activities during the period towards and after the March 2013 general elections. According to CBK average commercial banks’ deposit rate dropped from 7.88 per cent in June 2012 to 6.65 per cent in June 2013. According to CBK, average commercial banks’ deposit rate dropped from 7.88 per cent in June 2012 to 6.65 per cent in June 2013.
The fall in the overall deposit rate was reflected in the 0-3 months and ‘over three months’ deposits rates, which decreased by 335 basis points and 62 basis points from 12.12 per cent and 10.07 per cent in June 2012 to 8.77% and 9.45% in June 2013, respectively.
Over a similar period, the interest rate on demand deposits rose from 1.63 per cent in June 2012 to 1.86 per cent in June 2013, and the savings deposits rate also rose from 1.46 to 1.73 per cent.
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