Lenders in Kenya are warning that a raft of measures adopted to cushion Kenyan borrowers from the effects of the coronavirus pandemic could push them into a loans crisis.
The Central Bank of Kenya (CBK) issued guidelines that compel lenders to re-negotiate loan repayment terms with borrowers, including payment holidays and penalty waivers.
In addition, Kenyan banks are to meet all costs related to the extension and restructuring of loans, waive all charges for balance inquiries on mobile digital platforms and all charges for cash transfers between mobile money wallets and bank accounts.
The banks now warn of a possible financial crisis due to the anticipated revenue loss from these measures.
“We’re in a health crisis but we need to be careful so that we do not enter into a banking crisis that would weigh more on the prospects for an economic rebound,” said Habil Olaka, chief executive of the Kenya Bankers Association (KBA).
Commercial banks were expected to submit reports on their compliance with the CBK guidelines by April 10, but the regulator did not respond to queries on the number of lenders that had complied by the time of going to press.
The Kenyan banking sector’s gross non-performing loans (NPLs) increased 11 per cent to Ksh4.03 trillion ($40.3 billion) last year from Ksh3.63 trillion ($36.3 billion) in 2018, a situation that is set to worsen going by the huge economic impact on struggling borrowers.
The lenders argue that a blanket relief for borrowers will be a recipe for industry-wide disaster.
“The options of relief available have to be on a one-on-one discussion with banks since there is uniqueness in the business challenges and needs,” said Mr Olaka.
The Covid-19 pandemic has had a devastating impact on the global economy.
Governments are scampering to put together stimulus packages to cushion their economies against the effects of Covid-19 and prepare for the expected recession.
The virus has so far infected more than 2.7 million people and killed over 190,000 globally.
In China, the origin of the pandemic, the banking regulator, China Banking and Insurance Regulatory Commission (CBIRC), has drafted guidelines that will see banks’ lending to small and medium enterprises included in its annual assessment of the industry.
This is to help the Chinese government monitor how much support banks are extending to struggling small firms.
Absa Bank Kenya Plc announced that it has restructured customer loans amounting to over Ksh8.3 billion ($83 million) as part of a bigger relief programme to cushion borrowers against the financial difficulties occasioned by the Covid-19 pandemic.
“As the world continues to grapple with the Covid-19, the economic impact of the pandemic remains a great concern for our country, businesses and individuals,” said Jeremy Awori, managing director of Absa Bank Kenya.
“We understand that these are challenging times and we are working with our customers to support them get through these extraordinary times. In line with this, we have reviewed our credit terms and developed various options that we believe will cushion them against the prevailing financial difficulties,” he added.
Under this programme, Absa Bank Kenya (formerly Barclays Bank Kenya) is offering all customers an initial loan repayment relief of up to three months for personal and business loans, mortgages, asset finance and credit cards.
In addition, customers can request an extension of the repayment relief period to a maximum of 12 months, which will be assessed on a case by case basis.
The lender has also agreed to extend customers’ credit life insurance cover for three months at no additional cost.
“Customers will not incur any extra processing fees as a result of the relief. However, interest will accrue and the loan repayment period will be extended to accommodate the relief,” according to the lender, listed on the Nairobi Securities Exchange (NSE).
Stanbic Bank Kenya in March announced a loan holiday for small and medium-sized enterprises and its personal banking customers to cushion them against the economic disruptions caused by Covid-19, with effect from April 1 2020.
According to the bank, the loan holiday for SMEs will run for up to three months and will apply to all SME loan facilities, while commercial clients can contact the bank for assessment and restructuring of their loans based on their respective industry circumstances from the pandemic.
“We recognise that we are collectively affected by the coronavirus pandemic and strive to put in place contingency plans to mitigate against disruptions to our customers. The reality is SMEs are going through a tough period. We are therefore committed to unlocking new solutions to allow them to continue to run their businesses efficiently,” said Charles Mudiwa, the bank’s chief executive.