Why Banks Are Avoiding Lending to Kenyans Despite High Interest Rates

𝐓𝐮𝐞𝐬𝐝𝐚𝐲, 𝐃𝐞𝐜𝐞𝐦𝐛𝐞𝐫 𝟑, 𝟐𝟎𝟐𝟒

In a report by Business Daily, Kenyan banks have slashed loans to households and businesses by Ksh122.1 billion in the first nine months of 2024, marking the steepest decline in decades. This reduction, attributed to costly credit and high-interest rates, has triggered a cash crunch, rising defaults, and slowed economic activity. The average lending rate by banks rose to 16.9% in September from 14% a year earlier, discouraging borrowing and pushing lenders to limit risky loans. Major banks like Equity and Stanbic recorded significant contractions in their loan books. Only Cooperative Bank deviated from the trend with a minor expansion. The Central Bank of Kenya (CBK) has since responded by cutting its benchmark interest rate to 11.25% in October to stimulate borrowing and ease default pressures. The Treasury anticipates these changes will reverse the slowdown in private sector credit, which grew by just 0.2%—well below the healthy target of 12-15%. 

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The Treasury has announced plans to seek a new investor for the expansion and modernisation of the Jomo Kenyatta International Airport (JKIA) following the cancellation of a prior deal with Adani Group. Nation reports that Treasury Principal Secretary Chris Kiptoo revealed to the National Assembly’s Public Accounts Committee that the project will still proceed under a Public-Private Partnership (PPP) model. The government sees this as key to improving the airport's infrastructure and capacity.

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Foreign investors continued to pull out of the Nairobi Securities Exchange (NSE) in November, with a net selling position of Ksh667.5 million, the highest since March. According to Business Daily, this marks the second consecutive month of foreign sell-offs, following investor uncertainty linked to the US presidential election results. Many offshore investors are shifting their focus back to the US and other advanced economies, expecting growth in these markets under President-elect Donald Trump's protectionist policies. Despite strong local market performance, the selling trend has continued throughout the year, with foreigners being net sellers for seven out of the 11 months. The trend is expected to persist as investors close their books for 2024. 

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The National Assembly's Energy Committee has recommended sweeping investigations into nearly the entire energy sector, citing high electricity costs as a barrier to investment and a burden on Kenyans' livelihoods, as reported by The Standard. The committee has called for the Ethics and Anti-Corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI) to investigate former Principal Secretaries, along with other officials, over irregularities in Power Purchase Agreements (PPAs), particularly with Lake Turkana Wind Power (LTWP). It also proposes audits of independent power producers (IPPs) to evaluate their costs and tariffs and suggests setting up an independent office to oversee the onboarding of new IPPs. If adopted, these measures aim to reduce power costs and restore fairness in Kenya's energy sector. 

The Standard reports that Kenya Power plans to hire nearly 3,000 employees over the next three years to address staffing shortages caused by high retirement rates and a growing customer base. This marks a reversal from previous plans to reduce its workforce. The company’s workforce has declined from 11,295 in 2017 to 10,437 in 2024, below its optimal staffing level of 13,419. Over the last year, Kenya Power added 846 employees, primarily in customer-facing roles, and projects 488 retirements in the next two years. Despite financial challenges, the firm reported a Ksh30.8 billion profit after tax for the year ending June 2024, up from a Ksh3.2 billion loss the previous year, driven by shilling strengthening and improved operations.

The Tax Appeals Tribunal has ruled that the due date for Capital Gains Tax (CGT) payment is when a seller receives full payment for a property, not when the transfer is registered, challenging Kenya Revenue Authority’s (KRA) position. In a report by Business Daily, This landmark ruling arose when  the five-bench tribunal ruled against an additional CGT that the KRA had demanded from Paula Kendi Weru on the gains she made on the sale of land. Ms Kendi received payment in November 2022 and paid a five percent capital gains tax to the taxman in December 2022.  KRA's demand for additional CGT from Paula Kendi Weru, claiming the new 15% CGT rate applied since her property transfer was registered in January 2023, despite her receiving payment and paying 5% CGT in December 2022. The decision may encourage refund claims from taxpayers similarly affected during the transition to the higher CGT rate, potentially impacting KRA's aggressive tax collection strategies on property sales and mergers finalized during the rate change period.

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