Loans to businesses surged by 9.2 per cent in January, the fastest growth of credit to the private sector since June 2016 when Kenya had a double digit loan uptake of 10.3 per cent.
Bankers reckon that optimism witnessed during the second half of 2020 following partial reopening of the economy as coronavirus cases were being contained drove this resurgence in loans to businesses.
Private businesses also benefited from loan restructuring in the form of moratoriums on principals and interest, making the bulk of adjusted loans followed by renegotiated terms including maturities, interest rates and fees and a tiny portion of interest rate freeze allowing them to plan a path to recovery.
Analysts say the surge looks big as it is coming from a low base and is also a factor of restructured loans.
It is also a growth in the size of dollar denominated loans as the shilling depreciated against the greenback. Loans to the private sector declined around January 2015 when it dropped from a monthly growth of 20 per cent.
It was blamed on an expansionary government spending that turned the Treasury to borrow heavily locally, and diverting money to fund budget deficits.
But it would fall spectacularly in 2016 when in September the law capping interest rates was introduced slowing down private sector credit growth as commercial banks turned their backs on millions of low-income customers as well as small and medium-sized businesses deemed too risky to lend to.
Lifting of the rate cap at the end of 2019 saw private sector start picking up but the coronavirus pandemic again hit credit growth as risks rose on higher non-performing loans.
The prevailing tough economic times facing households since the first case of Covid-19 was confirmed in Kenya in March 2020 triggering job losses, salary cuts and tight purses has weakened strength of borrowers to honor loan repayment.
The loan defaults by December have seen the NPLs ratio rise to 14.1 percent — the highest since August 2007 — when it stood at 14.41 per cent.
Banks were also forced to extend repayment periods on loans worth Sh1.63 trillion by end of last December, an equivalent of 54.2 per cent of the total loan book.
Bankers say the recovery will not be aggressive per se but there will be a cautious expansion of bank portfolios towards productive sectors of the economy.
They say that while loans are expected to continue picking up as the economy continues to recover and loan appetite increases in the midst of a third Covid-19 wave and the heightened political environment in the country might arrest the resurgence of private sector credit.
Banks will also be worried if economic activity remains subdued for longer than expected and that has a detrimental impact on loan repayments.
The prevailing correction in the real estate market will also be a concern given banks’ direct exposure to the segment as well as the impact on value of collateral used as security for loans.