Kenya to Address Credit Slowdown Caused by Caps, President Says

  • Banks posting weaker profit as credit extension decelerates
  • Private-sector loan growth slowed to 4.3% in December

Kenyan President Uhuru Kenyatta said he’ll rectify a decline in bank lending to business caused by his decision in August to impose a limit on commercial lending rates.

Kenyatta in August capped rates at 4 percentage points above the central bank rate, fulfilling a campaign pledge he made before coming to power in 2013 to lower the cost of credit. The ceiling has failed to stimulate lending, with growth in loans to the private sector slowing to 4.3 percent in December, the weakest pace since at least 2005, from 18 percent a year earlier, according to central bank data.

“It’s unfortunate that the unintended consequence was a slowdown in credit to small- and medium-sized enterprises,” Kenyatta, who will seek a second term at elections in August, told lawmakers on Wednesday in the capital, Nairobi. “It concerns us, and my government is actively seeking to resolve this so that credit can start to flow again to the real drivers of our economy.”

Lenders in Kenya, East Africa’s biggest economy, are already posting weaker earnings. Equity Group Holdings Ltd., Kenya’s largest bank by market value, reported its first-ever drop in annual profit Wednesday as non-performing loans more than doubled and its loan book shrank 5 percent. Rival KCB Group Ltd. said last week it increased its provisions by 62 percent as non-performing loans grew by about a third.

Growth Threat

The government introduced the rate caps against the advice of the central bank. The International Monetary Fund warned last month that retaining the limits risks cutting Kenya’s economic growth rate by as much as two percentage points this year and next.

Kenyatta, who was delivering his final state-of-the-nation address before the August vote, said the economy grew by an annual average of 5.9 percent since 2013.

The nation’s debt expanded to 50 percent of gross domestic product as the government borrowed to finance a “most aggressive” development agenda that includes infrastructure projects such as the $3.2 billion Standard Gauge Railway, Kenyatta said. At the same time, his administration made adequate budgetary provisions to service the debt, he said.

“At no point has the country been at risk of default or shown any inability to pay its creditors,” Kenyatta said.

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