Kenyans took more loans from commercial banks last year than they did in 2021 despite the cost of borrowing increasing, Kenya National Bureau of Statistics (KNBS) study shows.

The Economic Survey 2023 has noted that the overall credit advanced by commercial banks and non-bank financial institutions as at end of December 2022 increased by 12.3 per cent to Sh6.2 trillion up from Sh5.5 trillion in December 2021.

“This increase was largely driven by credit advanced to the private enterprises, which increased by 11.9 per cent from Sh2,196.9 billion as at end of 2021 to Sh2,457.8 billion as at end of 2022,” reads the report.

The overall increase in credit advanced by commercial banks and non-bank financial institutions was high despite Central Bank of Kenya (CBK) raising its base lending rate, a move that saw loans become costlier for borrowers.

KNBS’s report says CBK adopted a tight monetary policy stance by raising the Central Bank Rate (CBR) from seven per cent in December 2021 to 7.50, 8.25 and 8.75 per cent in June, October and December 2022, respectively.

Loans and advances

“Consequently, lending interest rates for both loans and advances; and overdrafts increased from 12.16 per cent and 11.45 per cent in December 2021 to 12.67 per cent and 12.22 per cent in December 2022 respectively,” the report says.

Credit advanced to the private enterprises in the period under review accounted for 39.5 per cent of total credit advanced. Private households’ credit from commercial banks and non-bank financial institutions accounted for 17.8 per cent of the overall credit advanced.

Credit advanced to the agriculture sector increased to Sh119.1 billion as at end of 2022 from Sh97 billion as at end of 2021.

Other sectors where loan advances to private enterprises increased considerably include manufacturing, business services, trade and building sectors, among others. Similarly, total credit advanced to the public sector increased to Sh2.07 trillion as at the end of 2022 from Sh1.8 trillion as at the end of 2021.

Loans advanced to the national government increased by Sh245.5 billion to Sh2.01 trillion from Sh1.8 trillion in December 2021. Credit to the county governments, however, declined by over Sh11 billion to Sh6.3 billion as at end of 2022 from Sh18.2 billion as at end of 2021.

Loans to public financial corporations also declined to Sh54.1 billion in 2022 from Sh61.9 billion in 2021.

President William Ruto’s administration has pledged to reduce government borrowing and has vowed to no longer borrow money meant for recurrent expenditure. 

A finance ministry document issued  late last year showed recurrent expenditures were projected at Sh2.27 trillion or 16.2 per cent of gross domestic product in the 2022/23 (July-June) fiscal year.

Monetary tightening

Recurrent expenditure usually includes civil servant salaries, domestic and foreign interest payments, pensions and fuel costs for the government fleet of vehicles.

According to CBK’s Credit Officer Survey released early this year, despite the monetary tightening last year, the perceived demand for credit remained unchanged for the majority of economic sectors, and increased for personal and household, trade and manufacturing.