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Banks expect weak demand for loans on economic woes
CBK data shows that during the year to March this year, the stock of loans lent to private businesses by banks grew at a slower pace of 0.2 percent to Sh3.8 trillion, compared to a 7.9 percent jump witnessed in the prior period ending March 2024.
Banks are anticipating suppressed demand for loans from the private sector in the two months ending July 2025, as they remain under pressure from elevated costs of doing business, low disposable incomes as well as concerns over taxation.
Latest market perceptions survey published by the Central Bank of Kenya (CBK) notes that the impairing factors, will water down the gains that ought to have been derived from lowered interest rates and gradual recovery of the economy.
“The survey requested bank respondents for an assessment of credit demand from their perspective, during the two months before the Monetary Policy Committee meeting (April and May 2025), and their expectations for June and July 2025,” wrote CBK in the report.
“Bank respondents expect demand for credit to be tempered by high costs of doing business, low disposable incomes, and concerns over taxation.”
The survey targeted CEOs and other senior officers of 37 commercial banks and 302 non-banking organisations such as manufacturers and hoteliers.
If loans to the private sector dip, it will mark the extension of a general trend observed last year, where lending slowed down to touch near zero in October, on the back of high interest rates, increased non-performing loans and suppressed business activity.
CBK data shows that during the year to March this year, the stock of loans lent to private businesses by banks grew at a slower pace of 0.2 percent to Sh3.8 trillion, compared to a 7.9 percent jump witnessed in the prior period ending March 2024.
During the year to last December, loans extended to cover household expenses such as furnishing homes and medical bills overtook the facilities taken to start and grow businesses for the first time in six years, reflecting a softening economic setting that prompted firms to defer projects.
Credit to households, usually secured by pay slips and personal assets, expanded 9.2 percent or Sh48.2 billion to Sh572.3 billion during the period, at a time total loans issued to the private sector dropped 1.37 percent to nearly Sh3.86 trillion in a first annual contraction since 2001.
Last week, the CBK implemented a sixth straight cut on the benchmark rate to 9.75 percent from 10 percent, piling pressure on commercial banks to lower their rates in the broader effort to revitalise private sector lending.
The apex bank has now cut its key lending rate by a cumulative 3.25 percentage points since August last year when it commenced easing its policy stance, leaving the rate sitting at its lowest since June 2023.
Commercial lenders have, however, been slow to review their lending rates downwards despite the deep cuts in the Central Bank Rate, dampening private sector credit growth while escalating loan defaults.
