Private sector loans increase 12.5pc as banks cut lending to government

Lending to the private sector grew by 12.5 percent in the 12 months to December 2022 compared to the growth of 8.6 percent a year earlier, helped by banks cutting back their lending to the government in the period.

New credit data provided by the National Treasury shows that banks pumped in an additional Sh380.4 billion in loans to private borrowers last year, taking the total outstanding credit to the private sector to Sh3.43 trillion by the end of December.

In 2021, they raised the credit volume by Sh241.9 billion to Sh3.05 trillion.

The higher growth in private sector credit last year reflected the continued recovery of the economy from the ravages of the Covid-19 pandemic that caused a recession in 2020, even though this recovery was tempered by the rising inflation as a result of the Russia-Ukraine war which started in February 2022.

Last year, credit growth hit a peak of 14.2 percent in July—a six-and-a-half-year high— before easing back from August partly due to a slowdown of business activity around the prolonged General Elections period.

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A credit growth rate of 12-15 percent is seen as ideal for the healthy growth of the economy, supporting the private sector in the generation of new jobs.

“All economic sectors registered positive growth rates reflecting increased credit demand following improved economic activities. Strong credit growth was observed in the following sectors: mining, transport and communication, agriculture, manufacturing, business services, trade, and consumer durables,” said the Treasury in the 2023 Draft Budget Policy Statement released last week.

The turn to private sector lending was also helped by the reduced attractiveness of government bonds for banks, largely due to falling valuations of these securities as a result of rising yields in a high inflation environment.

The Treasury also concentrated on issuing longer-dated bonds, which are less popular with banks, as part of efforts to lengthen the country’s domestic debt maturity profile and lower refinancing risk.

Read: Private sector lending rises fastest in five years 

As a result, growth in domestic credit extended by banks to the government eased to 11.6 percent last year compared to a growth of 28.3 percent in the year to December 2021.

Outstanding credit to the government thus went up by Sh200.7 billion last year to Sh1.92 trillion, compared to a growth of Sh380.3 billion to Sh1.72 trillion in 2021.

The Treasury noted that lending to other public sector players also declined during the period, mainly due to repayments by county governments and parastatals.

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