Kenyan commercial banks expect lending in the private sector to go up in the second half of 2018, and consequently borrowing, thanks to the improvement of economic activities according to the central bank’s Monetary Policy Committee (MPC) perception survey.
Commercial banks predict that the payment of outstanding bills by the National and county governments will boost the economy thereby creating an improved credit environment.
However, the banks said the interest rate cap is preventing them from effectively pricing risk, therefore, slowing down private sector credit growth. Fortunately, the Finance Cabinet Secretary Henry Rotich has proposed to repeal the law in the upcoming financial year.
“The aim of the amendment which was to expand access to financial services and increase return on savings has not been achieved since banks have shied away from borrowers they consider riskier and have priced above the maximum lending rate,” said Rotich.
“In this regard, the Government is putting in place a package of reforms aimed at optimizing lending to the private sector while at the same time encouraging innovation in the financial sector in Kenya.”
According to the World Bank’s Kenya Economic Update in December 2017, the slowdown in private sector credit from 2015 was partly responsible for the slow economic growth.
Still, the MPC survey indicates that commercial banks and other financial institutions are positive that the economy will look up in the upcoming fiscal year because of favourable weather, spending in infrastructure, the rise in foreign direct investment, and the focus on the Big Four agenda.
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