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Banks to lend less to private sector, says KCB

By Awal Mohammed | July 26th 2020

Private sector credit growth (PSCG) is expected to decline as the country continues to grapple with the adverse economic effects of the coronavirus disease.

PSCG, which was recorded at 8.1 per cent in May according to the data from the Central Bank of Kenya, will be subdued despite relaxation of a number of Covid-19 containment measures aimed at boosting the economy.

This is according to a report by KCB Bank on the outlook of the economy before the Monetary Policy Committee (MPC) meeting on interest rates on Wednesday.

“PSCG was recorded at 8.1 per cent as per the latest CBK data (May) and we expect this metric to be subdued due to business challenges brought about by the operating environment under the Covid-19 pandemic,” said KCB Research Analyst Patrick Mumu.

The MPC conducts market perception surveys and has been releasing monthly economic outlook of the country since the pandemic hit Kenyan shores.

On the MPC report last month, CBK Governor Patrick Njoroge predicted sharp improvement of the country’s economy, noting that it has been on an upward trajectory since May.

The committee noted that private sector credit grew by 8.1 per cent in May (compared to nine per cent in April), with manufacturing at 18.6 per cent, consumer durables at 16.7 per cent and trade (8.2 per cent) supporting the growth.  

Even though the Central Bank Rate has remained at seven per cent since May, commercial banks have opted to funnel their money to government securities rather than lend to households and traders, despite the increasingly low interest rates on Treasury bills and bonds.

“The business environment remains fragile, evidenced by the gross non-performing loans ratio. This has occasioned the anticipated shift from lending by banks, with a focus on government securities, leading to heightened liquidity in the money market,” said Mumo.

KCB also anticipates the rate of inflation to remain within bounds primarily on account of low food prices coupled with stable fuel prices on the back of muted demand pressures in the global economy.

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