Credit to the private sector dropped in the first three months of 2018 according to the central bank quarterly credit report. This was as a result of commercial banks applying stricter guidelines than before with regards to lending.
The loans commercial banks issued in the first quarter of 2018 declined by Sh20 billion while non-performing loans surged 12 per cent. The ratio of total loans to total assets dropped 1.21 per cent to 58.4 per cent thanks to decreased interest margins.
According to the report, the total banks’ balance sheet rose 0.74 per cent from Sh4.08 trillion in March 2018 while total deposits surged 1.02 per cent to Sh2.98 trillion in March 2018 thanks to the rise in local currency deposits.
In addition, gross loans reduced 0.84 per cent from Sh2.43 trillion in March 2018. This was attributed to declining gross loans in the real estate, transport and communication, agriculture, tourism, trade, and mining and quarrying.
The political tension in the first quarter reduced the demand for services and goods as investors got cold feet thereby affecting business. However, the thawing of political temperatures improved the situation.
The Treasury is currently reviewing the caps on interest rates to reverse the adverse effects they have caused on the financial sector and the economy since introduction in 2016.