Private sector credit growth hits 5-month low over Covid

The pace of private sector credit growth has slowed to a five-month low as banks cut lending in the wake of Covid-19 that has seen borrowers run into financial constraints and seek repayment extensions on nearly a third of the loans.

Latest Central Bank of Kenya (CBK) data shows credit to private sector expanded by 7.61 per cent in the year to June to hit Sh2.69 trillion. This is the slowest pace since January when it grew at 7.3 per cent.

Banks had started lending to private sector at an increasing pace since the removal of interest rate cap in November but the momentum has been hurt with Covid-19 pandemic.

Private sector credit growth had increased in four consecutive months to hit nine per cent in April—the fastest pace in 34 months­­­­—but Covid-19 containment measures have led to sharp revenue falls, job cuts and pay reductions.

Banks are taking a cautious approach in extending fresh credit in an environment where corporates and individuals are increasingly seeking extension on their loan repayments due to liquidity challenges.

Official data shows banks have changed terms of loans worth Sh844.4 billion by end of June, an equivalent of 29 per cent of the total loan book as hardship facing borrowers escalates.

Personal and household loans top the list of debt restructured since March when the CBK allowed lenders to offer relief to distressed customers after Kenya reported it first Covid-19 case.

The falling pace of lending Is despite loans having cut the cost of credit to 11.92 per cent in May, being the lowest level in 29 years.