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Banks set to ease economic recovery from COVID-19 pandemic following CBK credit measures

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The benchmark rate was cut by one percentage point to 7.25 per cent, a pointer of policy bias towards cheaper loans.

Kenyan banks Association (KBA) has assured Small and Medium Enterprises (SMEs) that the new credit measures by the Central Bank of Kenya will enable them come out of the COVID-19 economic turmoil.

KBA chief executive Habil Olaka speaking to a local TV said the measures by the central bank’s Monetary Policy Committee (MPC) will make it easier for banks to lend cheaply and support economic recovery.

“These measures complement commitment by commercial banks to restructure any existing loans that may be affected by slowdown in business activity during this economic shock,” said Mr Olaka.

On Monday, CBK announced that it has cut its benchmark rate by the largest margin in three-and-half years and lowered the statutory deposits banks must hold with the regulator to boost flow of cash in an economy plagued by the pandemic.

The benchmark rate was cut by one percentage point to 7.25 per cent, a pointer of policy bias towards cheaper loans.

The regulator also reduced the cash reserve ratio (CRR) for commercial banks to 4.25 per cent from 5.25 per cent, adding that the move will release an extra Sh35.2 billion for lending.

Olaka added that, “It is worth acknowledging though that these measures need to be accompanied by interventions from non-lending agencies such as the suppliers and other service providers as well as the national and county governments.”

SMEs loans

Credit to the private sector grew by 7.7 per cent in the year to February, compared to 7.1 per cent in the year to December, coming below the ideal growth level of between 12 and 15 per cent respectively, to support economic growth.

In 2019, five commercial banks unveiled a Central Bank of Kenya-backed loan facility targeting small businesses.

From the facility, Micro, small and medium enterprises (MSMEs) are allowed to access unsecured loans ranging between Sh30,000 and Sh250,000.

The product dubbed “Stawi” involves loans processing through mobile phones, and repaid within one and 12 months with an interest of nine per cent per annum.

The facility is managed by Commercial Bank of Africa (CBA), Cooperative Bank of Kenya (Co-op Bank) , Diamond Trust Bank Kenya (DTB) , KCB Bank Kenya  and NIC Group .