East Africa’s retail banks have disclosed measures, including loan restructuring to cushion borrowers from the prevailing hard economic conditions precipitated by rising interest rates and inflation across the region.
The lenders which are listed on the Nairobi Securities Exchange have freely reverted to the Covid-19 debt relief measures that include loan repayment moratoria to bail out struggling households and businesses.
The latest move is part of efforts to avert potential defaults and strengthen customer loyalty in a competitive banking sector.
Several lenders sampled by the Business Daily revealed plans to extend a helping hand to their customers whose disposable incomes have been battered by the high cost of living and high interest rates.
These include KCB Group, Co-operative Bank of Kenya, I&M Group and Absa Bank Kenya).
Co-op Bank said it is restructuring customer loans to align their monthly repayment amounts with their reduced income levels while at the same time extending repayment periods.
“We are supporting our customers by way of restructures to align monthly repayment amount with their current (lower) income levels, extension of repayment period to accommodate for reduced monthly payments,” Co-op said in a statement
“We are also offering crucial non-financial services, notably customer training on debt management, to assist them to proactively build skills in prudent financial management to avoid debt distress.”
Co-op Bank’s loans and advances to customers in the nine months to September 2023 stood at Sh378.07 billion from Sh335.16 billion in the same period the previous year (2022), representing a 12.8 percent growth.
The lender has regional operations in South Sudan.
KCB Group chief executive Paul Russo said, “On a need basis, we are having conversations with customers to see how best we can accommodate them in light of their respective circumstances, especially as relates to existing facilities.”
KCB has regional operations in six countries including Tanzania, South Sudan, Rwanda, Uganda, Burundi and the Democratic Republic of Congo (DRC).
Its loan book grew to Sh1.04 trillion in the nine months to September 30 2023 from Sh758.81 billion in the same period the previous year, largely as a result of the acquisition of the Congolese bank Trust Merchant Bank SA (TMB) in 2022.
I&M Group said it will sustain its waiver of the transaction fees on money transfers between mobile wallets and bank accounts throughout this year and open another window for the restructuring of customer loans, including extending the moratorium on loan repayment to cushion customers on a case-by-case basis.
“Of course, if customers see that the increase in rates is going to impact their businesses adversely then one of the options that they have is to engage the bank and say, 'Look, I want to restructure my facility to fit my cash flows, can we talk about how that can be done?” Said the group’s regional CEO, Kihara Maina.
I&M Group has regional operations in Uganda, Rwanda, Tanzania and a joint venture in Mauritius.
Absa Bank Kenya said it intends to take a personalised approach in managing the financial challenges of its customers.
“We believe in taking a personalised approach to managing their financial challenges,” said Chiera Waithaka, the bank’s Chief Risk Officer
“We are encouraging our customers to reach out to us through their relationship managers or by walking to our branches early to discuss ways in which they can meet their financial obligations.”
Banks, across the region, are staring at the aftermath of rate increases with fears of massive defaults and reduced credit to the private sector looming large.
East African Central Banks have either increased their policy rates or left them unchanged to rein in rising inflation and weakening local currencies against the US Dollar.
For instance, last week Kenya’s Central Bank surprised the market with a 50 basis point increase in the policy rate to 13 percent from 12.5 percent, the largest rate hike in 12 years, setting a stage for increased defaults as borrowers struggle to service their loans.
In Uganda, the monetary policy committee, on February 6 2024, maintained the policy rate at 9.5 percent while the Bank of Tanzania (BoT)’s monetary Policy Committee (BoT) held its first-ever meeting on January 18 2024 and set the key interest rate at 5.5 percent.
The National Bank of Rwanda (NBR)'s Monetary Policy Committee (MPC) met on November 22 2023 and agreed to maintain the Central Bank Rate (CBR) at 7.5 percent to tame inflation and shore up the economy.
In Kenya, the Kenya Bankers Association (KBA) had earlier (through a research note) cautioned the Central Bank against further rate hikes, arguing an increase in interest rate will harm the fragile economy.
“The domestic economy remains vulnerable to the challenges facing the global economy – spanning high inflation, tighter financial conditions, weak trade growth and lower business confidence – particularly evident in the advanced economies of the US and Europe,” said KBA, the banking industry’s lobby group.
A market perception survey carried out by Central last month (January) shows that while businesses are optimistic of higher economic growth in 2024 compared to 2023, supported mainly by increased activity in the agricultural sector concerns on high cost of living and weaker Shilling remain.
The survey which sampled banks, microfinance institutions (MFIs) and non-bank private sector firms says that economic uncertainty occasioned by the high cost of living is expected to drive banks to become more cautious in lending to the private sector to minimize the risk of default.
On the other hand, the high cost of doing business due to expensive foreign currency, low business activities as a result of multiple taxes, as well as the high-interest rates are expected to dampen private sector credit growth in 2024.
“In the near term, 70 percent of the respondents expected upward pressure on inflation to come from the weak local currency leading to increased cost of imports. In addition, 50 percent of the respondents expected elevated inflation to emanate from increased electricity prices which is likely to offset the slight reduction in domestic fuel prices,” according to the survey.
In 2020 Kenya’s Central bank, in collaboration with banks, agreed on a set of emergency measures to help mitigate the adverse economic effects of Covid-19 pandemic on bank borrowers.
These measures included the elimination of all charges on money transfers between mobile money wallets and bank accounts, restructuring of existing customer loans and extension of a moratorium on loan repayments.
Kenya’s overall inflation for January increased to 6.9 percent from 6.6 percent in December last year (2023) mainly as a result of an increase in food and energy prices, according to the Kenya National Bureau of Statistics (KNBS).
