Banks expect an increase in private sector credit growth in 2022, driven by the reopening of the economy and capital demand by the Micro, Small and Medium Enterprises.
A Central Bank of Kenya (CBK) survey on the country’s economic prospects in the next 12 months shows approximately 72 percent of respondents expect private sector credit growth to be supported by demand for the credit arising from the economic recovery of sectors previously affected by Covid-19.
According to CBK, growth in private sector credit increased to 8.6 per cent in December 2021, from 7.8 per cent in October.
Strong credit growth was observed in transport and communication (14.3 per cent), manufacturing (13.1 per cent), trade (8.5 per cent), consumer durables (15.0 per cent), and business services (9.5 per cent).
“The number of loan applications remained strong in December, reflecting improved demand with increased economic activities,” CBK said.
Thirty three per cent of respondents expected more focus on supporting the MSMEs and the key sectors of the economy as they recover from the effects of containment measures through various financing options.
These include collaborating with financial institutions and the credit guarantee scheme to support the private sector credit growth in 2022.
The Market Perceptions Survey targeted chief executives and other senior officers of 356 private sector firms comprising 38 commercial banks, one mortgage finance institution, 14 microfinance banks (MFBs) and 302 non-bank private firms, including 84 hotels, through questionnaires sent in hard copy and by email.
Risks to private sector credit growth cited by respondents include political risk, delay in payments to suppliers and contractors by the government and private sector companies, and non-performing loans.
The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.1 percent in December 2021, compared to 13.6 percent in October, according to the latest CBK Monetary Policy Committee report.
Repayments and recoveries were noted in the manufacturing, personal and household, transport and communication and building and construction sectors.
Bank CEOs and senior officers expected moderate demand for credit by borrowers in January and February, driven by the need for working capital to re-stock and build inventories upon reopening after the festive period.
With increasing economic activities and resumption of businesses to full capacity, there is a need to safeguard against constrained global supply chains caused by logistical issues, and the fast-spreading Omicron variant, the report by CBK notes.
Banks are pushing for the approval of the proposed pricing policy and risk-based lending.
The effective use of credit reference bureaus would also improve their business environment, the CEOs said.
“Appropriate risk-return pricing regimen for traditionally high-risk client segments and creation of a guarantee fund for bad debts across the banking industry would make the environment better,” the survey reads in part.
Further, banks have suggested the creation of a separate and more effective legal system to resolve NPL cases lodged to the judiciary, the creation of effective policies and guidelines to manage NPLs.
They also want the implementation of a risk-based pricing framework to support SME segments excluded from accessing credit, saying it will go a long way in enhancing the business environment.
The current political environment is however likely to slow down demand for credit as investors remain cautious in a wait-and-see mood, due to possible political risk.
The survey was conducted in the first three weeks of January.
It aimed at getting perceptions on selected economic indicators for the previous November and December, and expectations for the next two months.