From the analysis conducted by the Central Bank of Kenya on bank supervision of Annual reports, there is a drop in the growth of new loan accounts. The drop happens to be going up at a time when the government’s appetite for domestic debt has increased, which has seen the state increase the amounts it borrows from the domestic market to finance the fiscal deficit, and this has attracted the attention of the national assembly watchdog committee.
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According to a June 2023 report on supplementary estimates II for the financial year 2022–23 released by the Budget and Appropriations Committee, the domestic market is becoming non-responsive. The committee noted that Treasury borrowed an additional Kes 50 billion from the domestic market in the financial year 2022–23 over the amount borrowed in the 2021/22 financial year. The committee observed that while the overreliance on domestic borrowing may ease the exchange rate risks from external borrowing, it may have a negative effect on individual borrowers who are Kenyan citizens, as banks would opt for increased government securities rather than lending to customers.
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In the same breath, the effects of increased domestic borrowing have already been felt by stakeholders in the credit market, according to the CBK’s annual reports. In the 2022 CBK Bank Supervision Annual Report, there were a total of 14.4 million loan accounts. This is an increase of 1.4 million compared to 2021 when the loan accounts at the end of that year were 13.0 million. In 2021, the loan accounts increased by 1.6 million from 11.4 million recorded in 2020, whereas the increase in 2019 was 3.1 million loan accounts. This trend shows that the growth in additional loan accounts has been declining since 2019, which corresponds to the increasing amounts of the government’s domestic borrowing.
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This has also attracted the attention of the World Bank, which warned that Kenya’s increased domestic borrowing is going beyond what is recommended, asked the government to work with an acceptable ratio that will not hurt private businesses whose taxes determine the revenues collected, and further suggested that the government should seek more funds from global sources such as the International Monetary Fund.
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