Private sector credit growth went up marginally despite various incentives by the Central Bank.
The sector saw a growth rate of 5.2 percent in the period to June this year despite the central bank holding the signal rate at 9 percent in the last seven months.
CBK Governor Dr. Patrick Njoroge is blaming the slow credit growth on lack of innovation. But financial experts see a different problem in domestic borrowing by the government and the rate cap law.
Lending to the private sector has dropped from a high of 34 percent of GDP in 2015 to the current 27.8 percent in 2018.
Loan advancement to the private sector has also seen subdued growth from a high of 12 percent annually to 4.4 percent according to data from the Kenya National Bureau of Statistics. The drop has been blamed on the introduction of interest rates capping law in 2016.
Njoroge says banks need to innovate to jumpstart loan to the private sector.
The impact of the signal rate has also been put into question. Despite CBK holding the rate at 9 percent in the last 7 months, credit advanced to the small and medium enterprises remains subdued.
However, lending to the public sector remains robust, with Treasury bills and bonds receiving more bids than offers.
The CBK governor is also raising concern with the rising provision of bad loans hitting a record high of 345 billion shillings as at the end of March this year
Real estate, manufacturing and the retail sectors have been blamed for increased non-performing loans at 10.4 per cent during the first three months of this year from 9.6 per cent in quarter one of 2018.
However, the CBK governor says innovative products and improved economic growth will lift lending and slow the growth of Non Performing Loans.