The Central Bank of Kenya (CBK) headquarters in Nairobi.
Over half of corporates in Kenya are now running their operations on funds from commercial banks and private equity (PE) firms, a survey showed, putting a pause to dependence on internal reserves that was witnessed previously amid expensive credit.
Findings showed that the number of companies relying on banks and PEs to fund their operations rose from 38.7 per cent in May to 53 per cent last month.
This level of reliance on banks and PEs is the highest in 15 months, even as many firms exhausted their internal reserves after a long stay out of the credit market due to prohibitive lending rates.
The Central Bank of Kenya survey on more than 1,000 chief executive officers (CEOs) reveals that at least 40.1 per cent of companies are relying on bank loans to finance their operations and 12.9 per cent on PE firms, the highest level since May last year.
At least 38.1 per cent of firms are depending on their own sources to finance operations, but this is a drop from 50.3 per cent of those recorded in May, the survey shows.
July marked the first time bank loans overtook companies’ own sources as the major source of financing since the CBK started tracking the data in May 2024.
“Most respondents reported that they finance their operations through multiple sources of funding. However, own resources and bank loans are the main sources of financing for firms,” the regulator said.
Data shows that the average lending rates by commercial banks declined marginally to 15.2 per cent in July, down from 15.3 per cent in June amid sustained cuts on the CBK indicative rate.
CBK in mid-August cut its policy rate from 9.75 per cent to 9.5 per cent, marking the 7th successive chop and piling pressure on commercial banks to follow cue.
The survey showed that the ratio of companies getting financing from banks has increased from 28.8 per cent in May, 29.9 per cent in March, and 26.9 per cent in January. The figure stood at 28.5 per cent in May 2024.
This proportion has come up alongside companies relying on PE firms for funding, which was 9.9 per cent in May before rising to 12.9 per cent in the July survey.
As more companies seek funding refuge from the lenders and PE firms, many have been slowing down on funding operations from their cash reserves, with chief executives indicating funds from own sources dropped from 50.3 per cent in May to 38.1 per cent last month.
July 2024 and January this year have been the periods in which most companies (59.6 per cent) indicated they funded their operations from their cash reserves.
Reliance on bank loans is being recorded even as companies complain over a number of challenges in accessing financing, including banks’ reluctance to lower interest rates and restructure loans, and reduced business incomes that have increased the cost of loan servicing.
“Nevertheless, some respondents noted improved access to credit, attributed to long-term relationships with banks, strong cashflows that enhance lender confidence, existing credit lines with the banks, and a solid credit history,” the survey says.
The regulator said that the majority of respondents reported moderate conditions in accessing credit.
The CBK survey targeted CEOs of over 1000 businesses in the private sector, cutting across manufacturing, tourism, financial services, trade, agriculture, and transport sectors.
The businesses captured in the survey are a fair representation of the economy and reflect the status of businesses that are recovering from a long period of poor access to credit on the back of high interest rates since 2023, when the CBK raised the base lending rate to control inflation.
