Credit to the private sector reduced in the first three months of this year as commercial banks tightened their noose on borrowers.
Loans issued by commercial banks from January to March dropped by 20 billion shillings with agriculture, mining and the transport sectors among the worst affected.
The quarterly Central Bank credit report further shows non performing loans increased to 12 percent.
It was a tough quarter for business in Kenya as political tension reduced demand for goods and services even as investors shied away from the market.
However, a thawing of relationship between political rivals has acted to soothe the situation.
Coupled with the interest rates capping law, credit to the private sector continues to under-perform with banks opting to lend to the government through treasury bills and bonds.
In the three months to March, the ratio of total loans to total assets decreased by 1.21 percent to 58.4 percent blamed on reduced interest margins.
In the three months, gross loans decreased by 0.84 percent from Ksh.2.43 trillion in March 2018.
This drop in gross loans was mainly attributable to a decrease in gross loans in the Agriculture, Mining and Quarrying, Trade, Tourism, Transport and Communication and Real Estate sectors.
The central bank’s quarterly credit report says that total banks’ balance sheet increased by 0.74 percent from to Ksh.4.08 trillion in March 2018.
Total deposits increased by 1.02 percent to Ksh.2.98 trillion in March 2018. This was attributed to an increase in local currency deposits.
Profit in the quarter decreased from Ksh.21.86 billion in December 2017 to Ksh.11.46 billion in March 2018.
The National Treasury has drafted plans to review the interest rates law, which is expected to face resistance from lawmakers once the bill is taken to parliament.
CBK expects the market to improve in the second quarter due to favorable rainfall and improved business environment.