Financial sector posts slowest growth in five years as lending pace slows

Tellers serve customers at a Post Bank branch in Nairobi. The rate cap law is partially to blame for slow credit growth to the private sector. [Photo:Wilberforce Okwiri]

The financial sector grew by 6.9 per cent in 2016, the slowest pace since 2012, according to the latest Kenya National Bureau of Statistics (KNBS) data.

In the findings captured in the 2017 Economic Survey, an annual Government document that captures how public and private sector has performed over 12 months, credit from banks slowed down, putting brakes on the sector’s earnings.

Negative growth

“The relatively depressed performance was mainly as a result of a decelerated growth of 6.7 per cent in earnings from banking institutions partly due to uncertainty associated with capping of interest rates,” says the report.

The banking sector, including other deposit-taking institutions, declined from a double digit growth (10.1 per cent) in 2015 to 7.1 per cent last year. While in 2015 total bills, loans and advances stood at Sh2.87 trillion after growing by 16.6 per cent, last year, the figure grew by a meager 4.94 per cent to Sh3.02 trillion.

With the survey covering a year to December last year, the cap on interest rates impacts four of the 12 months under review, having come into effect in September.


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Central Bank of Kenya (CBK) has said it is too early to know the reason behind slow growth in private sector credit since the cap was introduced when the rate of lending was on the decline.

The survey launched by Devolution and Planning Cabinet Secretary Mwangi Kiunjuri last year saw growth of credit to the public sector plummet from 24.5 per cent in 2015 to 9.1 per cent.

In the private sector, credit to the manufacturing, building and construction, mining and quarrying sectors recorded a negative growth even as Mr Kiunjuri said the sectors remain key in job creation.

The public sector has cut private enterprise portion of total borrowing by 1.1 percentage points to 61.5 per cent. Public sector borrowing moved to 22.4 per cent of total credit by the financial sector.

Deposits held by commercial banks grew by 4.2 per cent to Sh2.77 trillion, enough to finance Kenya’s 2017/18 financial year and leave a surplus. 

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