Private Sector Lack of Credit Blamed on Banks Despite Rate Cap Repeal

Since the rate cap repeal in November 2019, banks are yet to resume loaning private sector businesses that are deemed to be high risk arguing that it could only lend at higher rates than what the law had stipulated.

According to an analysis by EFG Hermes, banks have been slow to adjust to the law leaving private sector starved of credit, resulting in a slow economy.

In a report of the Kenya economy brief this week EFG pointed out that, “economic activity remains subdued as the impact of the rate cap repeal has yet to be seen, fiscal spending remains slow and commodity prices are depressed.”

It is expected that the economy’s performance will remain weak for the next year as banks take time and adjust to start lending, added the investment bank.

Few banks have lowered lending rates in line with the latest review by CBK’s Monetary Policy Committee, which cut the Central Bank Rate (CBR) to 8.25 per cent in January from 8.5 per cent while many banks have turned to lending to government through buying Treasury bonds and bills.

“With the economy slowing – evident in weak job creation – consensus is that CBK will have more room to reduce rates in an effort to jump start economic growth. This is the case with Treasury taking a tightening bias, making monetary policy the only game in town to boost economic activity,” said EFG Hermes.