CBK warns of economic slowdown as it retains benchmark rate

PHOTO:COURTESY

Banks have been accused of starving real estate firms, traders and manufacturers of credit, setting stage for a slowdown in the economy.

Central Bank of Kenya (CBK), which yesterday retained the indicative lending rate at 10 per cent from September, said its data shows that loans to almost a third of the economy had grown at 4.6 per cent.

“The committee noted that the slowdown in credit growth largely reflected sector developments in trade, manufacturing, real estate, and private households, which account for 60 per cent of total credit to the private sector,” said the bank’s decision-making organ, the Monetary Policy Committee (MPC) in a statement.

The MPC Market Perception Survey conducted earlier this month showed that private sector respondents expect a decline of growth this year on account of the prevailing drought conditions and slowdown in private sector credit growth.

What was just a story for small borrowers has crept into the drivers of the economy and CBK has noted slowdown in exports by the manufacturing sector, delays in registration of land titles and building approvals and availability of alternative external financing for key private sector projects.

BAD LOANS

Banks have not been spared either as sector bad loans rose significantly since the performing side of their loan books.

“The ratio of gross non-performing loans to gross loans increased to 9.7 per cent in February 2017, largely due to tighter credit standards and slower credit growth,” said CBK.

The regulatory data shows that gross bad loans had hit Sh214 billion by November last year, the biggest seen in the industry.

Central Bank said it expects the cost of living to remain high, driven by drought in March and April due to the dry weather conditions, but ease with the long rains.