Banks expect to increase their lending this year which will lead to the increased growth of private sector credit according to the latest Monetary Policy Committee survey. The committee says the increase is mainly associated with economic growth and a potential review of the interest rate cap law. In June this year, private sector credit growth hit 4.3 per cent growth.
The survey report reads:
“The higher expectations of credit growth at the beginning of 2018 were explained by the expectation of a review of the interest rate caps law earlier in the year. The subsequent downward revisions in the March, May and July 2018 Surveys were attributed to delayed payment of contractors by the central and county governments, reluctance to lend due to exposure to non-performing loans, availability of lower risk alternative investments such as government securities, and the inability to effectively price risk due to the interest rate caps.”
The survey also discovered a significant increase in credit demand by the private sector in industries such as real estate and agriculture.
Reduction of the CBR
38 per cent of the banks interviewed during the MPC survey said they expect to increase their lending after the CBR was reduced in March this year while 55 per cent of the banks said despite a lower CBR, their predictions for the private sector credit growth in 2018 are unlikely to change.
Overall, the survey’s respondents noted that the reduction of the CBR in March was an incentive to increased borrowing.
Ease of Accessing Credit
The survey found that 37 per cent of medium and small firms had a difficult and very difficult time accessing bank loans because of stricter conditions implemented by banks and the long waiting period before a loan is advanced.
“Additionally, respondents indicated that there were challenges with respect to the management of existing loans when the CBR was reduced. Some banks shortened the repayment period, and left loan repayments unchanged, hence offering no immediate relief from the lower rates to the existing borrowers,” the report states.
