Credit squeeze slows private sector growth

“Since the legislation to cap interest rates came into effect...we can now see signs of distress within the private sector as...[survey respondents] lament about cash shortages,” said Jibran Qureishi, the East Africa economist at Stanbic Bank.PHOTO: COURTESY

Activity in the private sector increased modestly in January, as banks slowed new lending to firms, a survey showed yesterday.

The Markit Stanbic Bank Kenya Purchasing Managers Index (PMI) fell to 52.0 per cent in January from 54.1 per cent in December, remaining above the 50.0 per cent line that divides growth from contraction.

“Since the legislation to cap interest rates came into effect...we can now see signs of distress within the private sector as...[survey respondents] lament about cash shortages,” said Jibran Qureishi, the East Africa economist at Stanbic Bank.

In September last year, the Government capped the lending rate for commercial banks at 400 basis points above the Central Bank Rate, which is now at 10.0 per cent, a measure economists said would hurt economic growth by discouraging loans to smaller borrowers deemed risky.

“A further slowdown in private sector credit growth and poor weather conditions will most likely lead to a downward trend in the PMI over the coming quarter,” Mr Qureishi said.

Private sector credit growth had already started falling at the end of 2015 after the Central Bank toughened supervision. Year-on-year credit growth was 4.3 per cent in December, compared to 17.8 per cent a year before, the Central Bank said. — Reuters