More Kenyan firms turn to banks, private equity for survival cash
The data reveals that in July, 53 per cent of firms funded their operations through banks and private equity, up from 38.7 per cent in May, making it the highest level of reliance in 15 months.
More Kenyan companies are now turning to commercial banks and private equity firms to finance their daily operations, reversing the recent trend of relying heavily on their own reserves, a new Central Bank of Kenya (CBK) survey shows.
The data reveals that in July, 53 per cent of firms funded their operations through banks and private equity, up from 38.7 per cent in May, making it the highest level of reliance in 15 months.
This shift has come as many corporates exhausted their internal reserves after staying away from expensive credit for a long period.
According to the survey, 40.1 per cent of companies relied on bank loans, while 12.9 per cent used funding from private equity firms, the highest level recorded since May last year.
At the same time, 38.1 per cent of firms financed operations from their own reserves, a sharp fall from 50.3 per cent in May. July became the first month in which loans from banks overtook companies’ own reserves as the leading source of financing since CBK began collecting 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.
The survey also shows that average commercial bank lending rates declined slightly to 15.2 per cent in July from 15.3 per cent in June, following consistent cuts on CBK’s policy rate.
The Central Bank reduced its rate again in mid-August from 9.75 per cent to 9.5 per cent, marking the seventh straight cut and adding pressure on commercial banks to ease lending costs further.
The trend in reliance on bank loans has steadily grown, with 28.8 per cent of firms borrowing in May, 29.9 per cent in March, and 26.9 per cent in January. This is compared to 28.5 per cent in May 2024.
Similarly, the use of private equity for financing rose from 9.9 per cent in May to 12.9 per cent in July.
While more companies are seeking external financing, use of internal reserves has been falling.
The July survey shows reliance on own cash sources dropped to 38.1 per cent from 50.3 per cent in May.
In contrast, January this year and July 2024 were the months when most firms (59.6 per cent) financed their operations from their own reserves.
