Gross loans have shrunk from Sh2.38 trillion in March this year to Sh2.36 trillion in June, Central Bank data shows.
Gross loans are the total amount of issued credits given to banks during an accounting period.
The decline came about despite over half (58 per cent) of bank executives polled by the regulator indicating a cap on interest rates had not impacted non-performing loans.
Data from the Central Bank of Kenya’s Credit Survey released yesterday showed the local banking sector’s loan book growth had shrunk by 0.84 per cent from March when it grew by two per cent.
This was despite demand for credit in trade and household sectors increasing as Kenyans took advantage of reduced cost of borrowing.
According to CBK, the decrease in gross loans was mainly attributed to a reduction in loans granted to support the transport and communication, trade, agricultural, real estate and the mining and quarrying sectors.
Forty-five per cent of the banks surveyed held the view that the actual credit granted had decreased after the cap on interest rates as lenders adopted a wait-and-see approach to gauge how the market would react to the rate cap.
The ratio of gross non-performing loans to gross loans at the same time increased from 9.5 per cent in March to 9.91 per cent in June.