The cost of loans to big companies in Kenya rose fastest compared to small enterprises, households and individuals in the one year to September due to an unfavourable business environment that has been seen to hurt the risk profile of businesses.

Updated data published by the Central Bank of Kenya (CBK) has revealed that corporates were charged an average base rate of 14.35 percent for credit in September this year, a 2.12 percentage point rise from the 12.23 percent charged in September last year.

The poor performance of the economy, which has hurt demand and consumer spending, has continued to dampen the economic outlook and financial performance of many businesses therefore worsening their risk profiles.

This is evident in the Sh113 billion increase in bad loans in the one year to September this year to Sh617 billion, largely blamed on the manufacturing and trade sectors.

However, micro, small and medium-sized enterprises (MSMEs) continued to pay higher for credit compared to households and corporates.

Over the one-year period the average base lending rate to MSMEs increased by 2.0 percentage points to 14.52 percent, with banks charging as high as 18 percent.

Households continued to enjoy lower base rates averaging 13.87 percent in September, marking a 1.6 percentage point jump in the one-year period.

The cost of credit has been rising consecutively since December last year, fuelled by a continuous upward revision in the central bank benchmark rate coupled with high domestic borrowing by the government.

The base lending rate, which was recently revised upwards by 200 basis points to 12.5 percent, will push the final cost of loans upwards, further choking the private sector in its quest for credit.

Return on government papers has also been rising, with the one-year T-bill interest currently at 15.8 percent, the highest return on the paper since November 2015.

The return on the 364-day is an important benchmark for loan pricing by banks as it competes with fixed deposit savings which provide the supply for cash for banks to lend to customers and also offer low-risk investments for banks.