Analysts at ICEA LION Asset Management, earlier released their 2017 outlook report which projected a slow growth in private sector credit. This is partly attributed to the implementation of the Banking amendment bill which was signed into law by President Uhuru Kenyatta on August last year.
The Banking (amendment) act which took effect on September 2016 seeks to cap bank interest rates at 4 percent above the Central Bank Benchmark Rate, which currently stands at 10.5 percent. According to analysts at ICEA the low rates have resulted in financial institutions slowing down on lending to businesses in the private sector due to the perceived risk.
In a statement to the press yesterday, ICEA Lion Asset Management CEO Einstein Kihanda said,
“We view the recently passed Banking Act as a detriment to the private sector growth, which remains a major contributing factor to the country’s gross domestic product. We expect to see the full effect of the Act in the fourth quarter banking results, this is likely to lock most of the consumers and SMEs from accessing loans from commercial banks since all cannot fit within the four per cent above the Central Bank Rate pricing framework.”
The private sector is a major driver of economic growth in Kenya with the sector contributing an output of over 80 percent to the GDP. With fewer lending options available for business expansion or to supplement cash flow, many businesses could face challenges that may strain their operations.
In 2016, private sector credit growth experienced a decline, hitting a low of 4.6 per cent for the year ending October 2016 compared to 19.5 cent which was registered in the same period in 2015. The new statistics and the weakening of the shilling against major currencies has added to growing concerns for businesses as Kenya heads to the ballots in August.
However not all is gloomy, as analysts predict that the economy is likely to experience a growth rate of between 5 percent to 5.5 percent in 2017 and will be hugely boosted by public sector investment spearheaded by the government as it seeks completion of mega infrastructure projects before the August 8th General Election such as the Standard Gauge railway.
1. Economic growth to slow this year, says ICEA analysts
2.Private sector credit to stay low as bank rate capping law bites