Liquidity ratios dip as banks scale up lending

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Liquidity ratios fall as banks increase lending


The Central Bank of Kenya, Nairobi, Wednesday, December 30, 2020. PHOTO | DENNIS ONSONGO | NMG

Banks’ stocks of liquid assets fell seven percentage points over the past year to 51.6% in July as lenders increased lending to customers.

Data from the Central Bank of Kenya (CBK) shows that liquidity ratios fell by 58% over a similar period last year as credit to the private sector grew at double-digit rates.

Disbursement of loans to the private sector increased for eight consecutive months through July, supporting the continued recovery of the economy and business confidence from the Covid-19 pandemic.

12-month credit growth, however, eased slightly to 12.5% ​​in August, down from July’s six-and-a-half-year high of 14.2%.

CBK data shows that over the past year, the industry’s loan-to-deposit ratio, which measures the percentage of deposits made as loans, fell from 72.6% last year to 76, 3% in July.

Over the 12 months, gross lending increased from 3.14 trillion shillings to 3.55 trillion shillings against deposits of 4.65 trillion shillings.

The liquidity ratio is a key indicator of the business environment and the general financial health of companies at a given period.

Credit utilization has been on an upward trajectory for eight consecutive months, rising from a 27-month low of 5.8% last July, when Kenya was still in the grip of Covid-19.

“The number of loan applications and approvals remained high, reflecting an improvement in demand with an increase in economic activities,” the CBK said in the monetary policy statement in September.

The CBK said strong credit growth was seen in manufacturing (15.2%), trade (13.3%), business services (16.1% and durable consumer goods ( 14.3%).

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