Trade and manufacturing were the biggest gainers in lending to the private sector, according to data from the Central Bank of Kenya (CBK).
The latest Financial Stability Report shows these sectors were the most attractive to lenders, with trade accounting for 17.1% and manufacturing accounting for 15.2% of the industry’s loan portfolio in the year ending. in June.
Households contracted 14.9% of loans while real estate accounted for 12.7% of credit to the private sector during the period under review.
“The economic sectors most attractive to lenders included manufacturing, trade, households, transport and communications, and real estate,” the report read in part.
CBK data did not show the value of outstanding loans in June, but the figure stood at 3.21 trillion shillings in May.
This indicates that the manufacturing sector received more than 488 billion shillings in cumulative loans, while trade and real estate received 549 billion shillings and 407.7 billion shillings respectively. Loans to households, on the other hand, exceeded 478 billion shillings.
“Low and stable interest rates have supported credit growth to the private sector through increased bank lending and allowed the government to issue domestic debt at low rates,” reads in part. The report.
Loans to the private sector rose to 3.21 trillion shillings in the 12 months to May, from 2.86 trillion shillings a year earlier.
“Credit to the private sector recorded double-digit growth for the first time in the first quarter of 2022 in nearly five years,” the report said.
“This reflects a change in the law which lifted interest rate controls in November 2019, the economic recovery following the easing of Covid-19 restrictions and a favorable political environment.”
Bank lending to the manufacturing sector has faced various challenges, including global supply shortages due to the Covid-19 pandemic and the war in Ukraine.
However, the sector recorded a growth of 3.7% in the first quarter compared to an expansion of 2.1% in the corresponding quarter of 2021, according to data from the Kenya National Bureau of Statistics. The trade sector grew by 8.7% against 8.5% a year earlier.
Most industries recorded significant growth from last year, marking a recovery from a mix of slowdown and contraction seen in 2020 when the impact of the pandemic was most severe.
Economic activities have suffered from measures – including travel restrictions, school closures and reduced business opening hours – that have been implemented to curb the spread of Covid-19.
Banks are expected to lend more to the private sector once they are able to freely price loans according to the risk profile of the client.
Following the removal of rate caps, banks were required to submit their frameworks for risk-based loan pricing. Some banks have received approval for their models.