Private sector credit growth for the month of March 2017 grew at 3.30 percent y/y; down from 3.80 percent and 15.60 percent recorded in February 2017 and March 2016, respectively.
Lending to the agriculture, manufacturing, finance and insurance and business services sectors decelerated by 9.30 percent, 7.80 percent, 4.40 percent and 15.60 percent, respectively.
The slowdown in private sector credit growth in the subject month can be attributed to a hat-trick of factors:
Banks have resorted to safe harbor in fixed income securities and also seen in the excess reserves above the statutory 5.25 v level held at the apex bank averaging KES 7.22Bn.
Whilst the interbank rate averaged 4.53 percent in March, a number of banks facing liquidity deficits gained access to the interbank funds at the 14.00 percent upper borrowing ceiling.
There was a significant decrease in the growth of interest-bearing deposits at 9.00percent y/y. The slowdown in private sector had an outlet in the leading indicator CFC Stanbic Bank Kenya PMI March print which at 48.50, was weighed down by subdued demand and pointed to a contraction. With the steady decline in the private sector credit growth, we reiterate our 2017 GDP growth estimate of between 4.75 percent – 5.25 percent.
On the other hand, Business Monitor International Ltd (BMI Research) their July African Monitor issue No. 7, the analysts state that, “ A drought and deceleration in credit growth has led us to revise down our 2017 forecasts for real GDP growth in Kenya as economic activity will remain weak over H117 has led us to revise the GDP to 5.2 percent from 5.6 percnt previously.”
Despite the headwinds posed by drought over H117, these will not lead to any significant change in our otherwise positive outlook for the Kenyan economy. While any slowdown in agriculture will have a significant impact, other sectors will likely continue to post strong growth.
However, “The outlook remains positive beyond 2017, with the economy’s headwinds expected to be short-lived,” they add.