Kenya’s banking regulator retains lending base at 9pc

The Central Bank of Kenya Thursday retained the CBR at 9.00 percent owing to the stability in the inflation expectations which “remained well anchored within the target range, and that the economy was operating close to its potential.”

The regulator, however said, there was need to be vigilant on the possible effects of the recent increases in fuel prices, the ongoing demonetization, and the increased uncertainties in the external environment

“The Committee noted the gradual demonetisation (withdrawal of the older KSh. 1,000 notes) and the close monitoring by CBK will ensure that the process is not disruptive to the economy,” it said.

Month-on-month overall inflation remained relatively stable and within the target range in May and June 2019. The inflation rate stood at 5.7 percent in June compared to 5.5 percent in May. However, food inflation rose to 6.6 percent in June from 6.0 percent in May, reflecting increases in the prices of non-vegetable food crops particularly maize, due to uncertain supply.

Non-food-non-fuel (NFNF) inflation remained below 5 percent, indicative of muted demand pressures and spillover effects of the recent rise in fuel prices.

Overall inflation is expected to remain within the target range in the near term largely due to expectations of lower food prices following improved weather conditions, and lower electricity prices with the reduced reliance on expensive power sources. The effect of the July 1, 2019, excise tax indexation is expected to have a moderate impact on inflation.

The banking sector has remained stable and resilient with average commercial banks’ liquidity and capital adequacy ratios standing at 50.6 percent and 18.2 percent, respectively, in June.

The ratio of gross non-performing loans (NPLs) to gross loans stood at 12.7 percent in June compared to 12.9 percent in April, partly due to decreases in NPLs in the manufacturing, building and construction, financial services and electricity and water sectors. Banks have continued with mitigation measures against NPLs, including enhanced recovery efforts. This has been supported by the recent payments of pending bills by the Government.