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A new report has recommended new ways for banks to increase corporate lending amid growing worry about the crowding out of the private sector in the domestic credit market.

Repealing or amending laws in the corporate debt space is one of the policy recommendations in the study that examines the effect of government borrowing on private-sector credit.

The crowding-out effect happens when the government borrows heavily from the domestic market to the extent that banks shun lending to the private sector due to the security associated with sovereign debt and the expected returns.

While it is common for banks to lend to households or businesses, the study titled Sovereign Debt Sustainability and Private Sector Credit in Kenya launched during this year’s Kenya Bankers Association (KBA) Annual Meeting last week, found that government borrowing did not affect banks’ investment in private securities.

The study emphasises the need for public-private partnerships (PPPs) to reduce the State’s appetite for domestic debt, which would allow businesses and households to borrow.

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