Capital Markets

Banks restructure Sh1.1 trillion loans on Covid cash woes

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The Central Bank of Kenya (CBK) said lenders reviewed Sh849.9 billion of business loans in the period to August. FILE PHOTO | NMG

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Summary

  • Personal and household loans top the list, with Sh271 billion reviewed since March or a third of the total loans whose terms have been changed.
  • This reflects the financial struggles of many workers who had borrowed loans on the strength of their pay slips only to later suffer pay cuts, unpaid leave or even layoffs in certain cases.
  • About 1.72 million workers lost jobs in three months to June when Kenya imposed a lockdown to curb the spread of the corona virus, slowing down business activity and triggering large-scale layoffs and pay cuts.

Banks have restructured loans worth Sh1.12 trillion or 38 percent of the total loan book by end of August due to the coronavirus-induced economic hardships that have hurt the borrowers’ ability to repay.

Personal and household loans top the list, with Sh271 billion reviewed since March or a third of the total loans whose terms have been changed.

This reflects the financial struggles of many workers who had borrowed loans on the strength of their pay slips only to later suffer pay cuts, unpaid leave or even layoffs in certain cases.

About 1.72 million workers lost jobs in three months to June when Kenya imposed a lockdown to curb the spread of the corona virus, slowing down business activity and triggering large-scale layoffs and pay cuts.

Data by the Kenya National Bureau of Statistics (KNBS) shows the number of people in employment fell to 15.87 million between April and end of June compared to 17.59 million the previous quarter.

The first case of Covid-19 infection was reported in the country in March.

The Central Bank of Kenya (CBK) said lenders reviewed Sh849.9 billion of business loans in the period to August, with firms in the trade, real estate, transport, communication and manufacturing sectors topping the list of applicants for reliefs.

“These measures have continued to provide the intended relief to borrowers,” CBK Governor Patrick Njoroge said in a statement following a meeting of the regulator’s Monetary Policy Committee (MPC) on Tuesday.

Under the CBK’s initiative to offer relief to borrowers, struggling individuals and companies can take a three-month repayment holiday, lengthen the tenure of their loans, or opt to just pay the interest for a period of time. The relief also applies to credit card debt and mortgages.

Dr Njoroge said that key indicators for the third quarter point to a strong recovery in economic activity following the disruptions witnessed in the second quarter of 2020.

“This improvement and resilience is supported by agricultural production, increased activity in key sectors particularly services with the easing of Covid-19 restrictions, normalisation of exports, and government interventions to mitigate the impact of the pandemic,” he said.

The Ministry of Health on Tuesday announced that seven more patients had died of Covid-19, increasing the death toll to 707.

Health Cabinet Secretary Mutahi Kagwe confirmed 210 new Covid-19 infections, raising the total number to 38,378.

The crisis has affected the country’s vital tourism sector, hammered its fresh produce exports and severely disrupted other sectors such as construction, trade and transportation.

The government has halved its projected economic growth for this year to 2.5 percent from an initial forecast of six percent, underlining the economic damage of the pandemic.

In addition to allowing lenders to offer relief to distressed borrowers, the CBK has cut lending rates and lowered the ratio of cash that commercial banks are required to hold.

The government also reduced value-added tax by two percentage points to 14 percent and imposed cuts on corporate and income tax. The CBK on Tuesday kept its key lending rate unchanged at seven percent, the fourth time in a row.