Number of loans rises by 35pc since rate cap, but total amount declines

May 30, 2017
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NAIROBI, Kenya, May 30 – The number of loans applied and approved has gone up since the introduction of interest rate capping in August 2016.

Data released by the Central bank shows the number of loan applications increased by 23.4 percent between August 2016 and April 2017, while approved loans went up by 35.7 percent.

However, the value of loan applications and approved amounts decreased by 18.3 percent and 16.3 percent respectively, “suggesting smaller size of loan applications,” CBK’s Monetary Policy Committee said.

Between February and April 2017, loans to manufacturing, real estate and household saw a marked improvement.

Notably, personal/household loans increased from Sh605 billion to Sh614 billion, the highest amount in loan types.

During the same period, credit to trade, financial services and agriculture shrunk with loans going to the trade segment decreasing from Sh454.13 billion to Sh444.53 billion.

The MPC – which has retained the CBK rate at 10 percent – says the banking sector remains resilient with liquidity ratio increasing to 44.4 percent in April 2017 compared with 43.2 percent February.

“Following interest rate capping, banks are moving towards changing their business models, focusing more on non-funded income, secured lending, efficiency driven by digitalization and diversification of revenue streams,” CBK Governor Dr. Patrick Njoroge said.

Rising inflation due to higher food prices and concerns on the slowdown in private sector growth were some of the key issues the monetary policy committee considered.

Bankers and Bretton Woods institutions have linked the slowdown of credit to the interest capping that pegged commercial lending rates to the CBK rate.

The committee concluded that overall inflation is expected to remain above the Government target range in the near term as it continues to closely monitor developments in the domestic and global economies.

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