Loans to businesses in Kenya expected to rise ahead of festive season – survey

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  • Banks expect an increase in the growth of loans to businesses in Kenya for the rest of the year, supported by an increase in demand to meet business and personal needs
  • A Central Bank of Kenya survey found that loans to businesses in Kenya would grow as businesses start capital expenditures and the environment continues to improve post-Covid and post-elections
  • 43% of non-bank private firms said they expected the demand for loans to increase in November and December as they sought to boost business finance and working capital requirements

Banks expect an increase in the growth of loans to businesses in Kenya for the rest of the year, supported by an increase in demand to meet business and personal needs.

A survey conducted by the Central Bank of Kenya found that loans to businesses in Kenya would grow as businesses start capital expenditures and the business environment continues to improve post-Covid and post-elections.

The growth of loans to Kenya’s private sector will also be helped by optimism in the economic recovery and increased economic activity post-Covid and post-elections.

However, respondents of the survey indicated that the impact of the slowdown in economic activity during the general elections could affect the 2022 growth of loans to businesses in Kenya.

Banks see demand for loans to be supported by increased confidence post-elections and increased spending during the festive season. Risks to demand for credit included the increasing inflationary pressure and possible precautionary measures by banks in an environment of higher interest rates. 

Read more: Most Kenyans turn to digital lending to grow small businesses: report

Inflation to push demand for loans to businesses in Kenya

At the same time, 43% of non-bank private firms said they expected the demand for loans to increase in November and December as they sought to boost business finance and working capital requirements.

In addition, 33% and 24% of respondents cited high inflation and increased demand for products as reasons
for expected demand for credit in the next 2 months.

Overall, respondents said they expect economic growth to remain resilient despite the underperforming agriculture and high inflation.

83% of respondents expected economic growth for the remainder of 2022 to be supported largely by the services sector, while 47% respondents expected support to come from the rebound in consumer activity post-Covid and post-elections.

In addition, 30% of respondents cited the stronger credit growth as a reflection of resilience in business and growth.

Banks expect a rise in the growth of loans to businesses in Kenya for the rest 2022, as demand to meet business and personal needs rises. Photo: Unsplash.

However, respondents highlighted some risks to growth expectations in 2022 including the underperformance of the agricultural sector, cited by 50% of respondents, and high inflation lowering household consumption, high cost of goods due to higher fuel cost and raw material cost due to the war in Ukraine, also cited
by 50% of respondents.

Read more: Kenya: KCB to loan KSh 250 billion to women entreprenuers

Inflation in Kenya to rise

In terms of inflation, respondents expected inflation to remain elevated in the next 2 months. As such, 46% of the respondents expected elevated food prices on account of reduced agricultural output and distribution challenges related to high transport costs.

38% of respondents expected elevated energy prices, the resultant high cost of production and hence higher commodity prices due to high international oil prices and lifted fuel subsidies to exert upward pressure on inflation in November and December.

Additionally, 23% of respondents expected upward pressure on inflation from the impact of a stronger dollar and more expensive imports.

Nevertheless, about 50% of respondents expected some relief on inflation from stabilizing international oil prices and the onset of short rains, which is expected to drive down the cost of food, particularly fast-growing vegetables.

In addition, respondents expected the easing of global prices of food commodities to lead to lower food prices. However, over the next 12 months, inflation was expected to moderate.

The findings are part of the Central Bank of Kenya (CBK) Survey conducted to obtain perceptions of banks and non-bank private sector firms on selected economic indicators, including inflation, economic growth, demand for credit, growth in credit to the private sector and exchange rate.

Commercial banks, micro-finance banks, and a sample of non-bank private sector firms are included in the Surveys. The sample of nonbank private firms are selected from major towns across the country, including Nairobi, Mombasa and Kisumu.

The survey covers agriculture, mining and quarrying, manufacturing, trade, hotels, and restaurants, information and communications technology (ICT), transport, real estate, health, building and construction, and finance and insurance.

Read more: Kenya: KCB signs deal to accelerate access of loans to SMEs

Wanjiku Njuguna is a Kenyan-based business reporter with experience of more than eight years.

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