The total value of loans given by Kenyan banks shrank last month for the first time in more than decade.

Central Bank Governor Patrick Njoroge said there were more repayments than new borrowings last month. Low credit appetite indicates that businesses are not seeing growth opportunities in the economy, or they are shelving expansion plans due to jitters about the country’s upcoming general election scheduled for August 8.

The proportion of bad loans is on the rise.

“The ratio of gross non-performing loans to gross loans rose to 9.9 per cent in June, from 9.6 per cent in April, partly reflecting a decline in gross loans,” said Dr Njoroge.

He disclosed that some large companies were restructuring their loans, signalling fear of default.

One of the companies that has restructured its debts is East African Breweries, which recently extended the life of its bond by two years giving itself more time to repay Ksh5 billion ($50 million).

Kenya Airways is also in the process of restructuring its balance sheet in a deal that will see it reduce debt obligations by ceding shareholding to banks that it owes. KQ has agreed with 11 banks to convert its $225 million in loans owed to them into equity, in a deal that awaits shareholders approval on August 7.

Due to the high inflation rate, the Central Bank Rate (CBR) remains at 10 per cent despite low credit growth. Kenya’s rate of inflation is currently 9.2 per cent, above the CBK upper limit of 7.5 per cent.

The Kenyan shilling is also expected to come under pressure as the country goes into a general election. The shilling is currently trading at 103.9 to the dollar, which is the lowest it has been in the past year.

Rationed credit

A drop in the indicative rate would also lower the price of loans in the country as lending rates are pegged on the CBR following the introduction of interest caps last September.

Banks have been accused of rationing credit to businesses in a bid to twist the government’s arm to review the law.

Commercial banks have made attempts to increase fees so as to recover lost interest income, but their efforts have been thwarted by the Central Bank that has to approve pricing changes by banks.

“Since September 2016, we have had 16 requests for fees, imposition of a fee or adjustment in fees, or request for approval for fees. We have only approved three,” said Dr Njoroge at a press briefing in Nairobi. “Those three have been new services, new products. We have held all the other 13 in abeyance.”

Low credit uptake has been cited as one of the factors that has dragged the Kenyan economy down this year.

The country reported a 4.7 per cent growth in the first three months of the year, down from 5.3 per cent in the same period last year.