East Africa’s credit slowdown threatens economic expansion

*Credit growth slows.

*Monetary-policy easing, rate caps have failed to boost lending
*IMF has cut Kenya growth outlook, warns of risks to Tanzania

11 April 2017, Nairobi — East Africa’s three biggest economies are struggling to arrest a slowdown in the growth of loans to businesses and individuals that threaten to curb economic output in the continent’s fastest-growing region.

Bank credit to the private sector in Kenya, Tanzania, and Uganda is growing at the slowest pace in well over a decade. And while the authorities have eased monetary policy and, in Kenya’s case, capped commercial interest rates to encourage more lending, analysts including Standard Chartered Plc’s Razia Khan aren’t expecting a turnaround anytime soon.

“Credit growth is slowing as businesses and consumers that borrowed more than they could otherwise afford now struggle to repay or refinance loans,” said Chris Becker, frontier strategist at Johannesburg-based brokerage Investec Prime Services.

The International Monetary Fund in February cut its growth forecast for Kenya’s economy to 5.3 percent in 2017-18 from a prior estimate of 6.1 percent, citing the credit slump and factors including a drought. While the fund has kept its projection for Tanzania at 7 percent this year, the outlook is at risk if there’s a “prolonged slowdown” in credit growth, it said in January. The virtual standstill in credit growth in Uganda, where the economy is expected to expand 5.5 percent this year, is creating an “air of uneasiness and uncertainty,” the lender said.

Credit to the Kenyan private sector grew 4.9 percent in December, the slowest pace since 2003 and compared with a record 35.9 percent in 2011, according to central bank data compiled by Bloomberg. In Tanzania, the increase was 5.2 percent in January, the lowest since 2000, while in Uganda it was 7.5 percent in February, after growing less than 10 percent most of last year and even contracting in two months.

*Felix Njini – Bloomberg

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