NAIROBI, May 6 (Xinhua) -- Kenyan banks expect to lend more to small businesses in the second quarter of 2021 after liquidity improved in the first quarter, a survey of 39 bank managers released by the Central Bank of Kenya on Thursday says.

Liquidity in the quarter ending March 31 rose due to increased deposits, maturity of government securities, loan recovery and capital injection.

"It is expected that in the second quarter of 2021, issuance of credit will increase as most banks intend to deploy the additional liquidity towards lending to the private sector and investing in Treasury bonds and bills," the Central Bank said.

In 2020, the apex bank's monthly economic data shows that the financial institutions lend out 2.81 trillion shillings (26 billion U.S. dollars) to the private sector, a slight rise from 2019, with over 26 percent (7 billion dollars) of the total loans going to households and the rest to businesses.

On the other hand, the banks lend to the government some 17.06 billion dollars in 2020, up from 15 billion dollars in 2019.

According to the World Bank, private sector credit growth in Kenya remains moderate.

The increase in liquidity is good news to small businesses in the east African nation, which has struggled to get credit amid the COVID-19 pandemic.

Banks reduced lending to small businesses as they channeled their funds to government securities, which they considered less risky.

The bank managers identified the negative effects of the pandemic on their businesses as reduced earnings, rise in operational costs due to the extension of payments holidays and restructuring of loans for affected customers, increased expenditure since banks have been compelled to purchase personal protective equipment for staff and increased non-performing loans.

On the flip side, the pandemic has increased the use of digital platforms and offered banks an opportunity to revamp their delivery channels. Enditem

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