Private sector credit growth in Kenya dropped sharply to 4 per cent in the 2023/24 financial year, totalling Sh3.8 trillion, a stark contrast to the 12.2 per cent recorded in the previous fiscal year.

This decline, revealed in the Central Bank of Kenya’s (CBK) Annual Report for 2023/24, has been attributed to the volatile foreign exchange market, which affected loans denominated in foreign currencies.

Manufacturing bore the brunt of the slowdown, with lending in the sector plunging from 18 per cent to -0.6 per cent.

Other sectors fared no better, with trade shrinking to 1 per cent, building and construction tumbling to -8.3 per cent, and transport and communications sliding to 4.4 per cent.

On a brighter note, credit to business services rose to 8.3 per cent from 5.5 per cent, while other activities recorded a slight uptick from 8.7 per cent to 8.8 per cent.

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“Growth in private sector credit moderated to 4.0 per cent in FY 2023/24 compared to 12.2 per cent in the previous financial year, partly reflecting exchange rate valuation effects on foreign currency-denominated loans,” the report stated.

Foreign currency loans, making up a significant 26 per cent of private sector credit, were heavily concentrated in manufacturing, trade, and transport sectors—all of which saw considerable declines during the year under review.

The CBK report also noted a slowdown in net lending to the government, which fell from 13.0 per cent to 9.8 per cent.

Meanwhile, the Kenyan shilling experienced intense depreciation against major currencies, fuelled by the maturity of a Eurobond and rising interest rates in advanced economies, which strengthened their currencies against the local unit.

Kenya managed to stabilise its currency after successfully repaying the Eurobond ahead of its maturity date and securing dollar-denominated loans from international lenders.

CBK Governor Kamau Thugge attributed this recovery to a strategic hike in the Central Bank Rate, which was raised from 12.5 per cent to 13 per cent to combat inflation and bolster the shilling.

The report paints a complex picture of Kenya’s economic landscape, underscoring the interplay between global financial dynamics and domestic credit markets.