Kenyan Central Bank Says Credit Market Failure Persists

NAIROBI (Capital Markets in Africa) – Kenyan credit costs that prompted the introduction of interest-rate caps last year have remained high despite the government’s efforts, according to the central bank.

Authorities in East Africa’s biggest economy instituted a 400 basis-point rate cap above the prevailing benchmark measure for commercial loans last year with the view to making credit more affordable. Instead, banks now lend only to the least risky clients and the government.

“Some of the structural rigidities that led to market failure and prompted the interest rate caps still remain,” the central bank said on its website.

Lenders have dragged their feet in implementing reforms such as credit scoring and sharing customer information, the central said in proposals to guide a renewed push for increasing lending.

Banks are now required to implement risk-based credit scoring, and disclose terms and pricing for all their loan products. Lenders should also target at least a 20 percent increase in credit to small- and medium-sized companies by 2020, according to the proposals that take effect on Sept. 1.

The central bank expects the institutions to have a time-bound implementation plan for the proposals before October and each lender will have to submit a quarterly report on their progress.

Kenya’s private-sector credit growth picked up to 4.3 percent in June after falling to 2.4 percent in the 12 months through December, the lowest annual growth rate since at least 2005, according to central bank data.

Source: Bloomberg Business News