Capital Markets

Equity recovers 90pc of Covid restructured loans

Equity-centre

Equity Group headquarters in Upper Hill, Nairobi. PHOTO | NMG

Equity Bank’s borrowers who were given loan repayment moratoriums worth Sh171 billion during the Covid-19 pandemic have fully repaid or resumed servicing 90 percent of the facilities, reflecting the continued return to health of the economy despite renewed shocks from high inflation.

The lender said last week that restructured loans worth Sh49.4 billion had been fully repaid by the end of September, while borrowers were servicing others worth Sh104.9 billion.

Some loans worth Sh9.5 billion are, however, non-performing from this portfolio of restructured facilities, while the lender expects the remaining Sh7.7 billion worth of loans to resume repayment by the end of next month.

The restructured loans were the equivalent of 54.6 percent of Equity Bank Kenya’s loan book of Sh313 billion by the end of 2020, and 35 percent of the group’s total loan book of Sh478 billion in the period. The group’s total loan book has hit Sh674 billion.

“The accommodation we made has been unwound, and we are now not carrying any legacy of Covid-19,” said Equity Group chief executive officer James Mwangi during the release of the lender’s third-quarter 2022 financials.

The Central Bank of Kenya (CBK) had in March 2020 put in place emergency measures to mitigate the adverse economic effects of coronavirus on bank borrowers, with these measures expiring on March 31, 2021.

The pandemic had hit key economic sectors such as tourism, hospitality, construction, education, trade and transportation, causing the loss of hundreds of thousands of jobs and the closure of businesses. As a result, the country’s economy dipped by 0.3 percent in 2020, compared to 5.0 percent growth in 2019.

This meant that many borrowers were unable to continue servicing loan obligations, hence the move to offer easier terms.

The initiative allowed individuals and companies a range of options to ease their repayment strain, including a three-month repayment holiday, lengthening the tenure of their loans, or opting to just pay the interest for a period of time. The relief also applied to credit card debt and mortgages.

Under the plan, loans worth a cumulative Sh1.7 trillion were restructured, accounting for 57 percent of the banking sector’s gross loan book.

By the end of the period, the value of outstanding restructured loans amounted to Sh569.3 billion, or 19 percent of the total gross loans, as some had been progressively repaid under the softer terms.

The economy recovery this year has, however, not been matched by significant improvement in bank asset quality, with non-performing loans still relatively high at 13.8 percent of total loan book as of October due to renewed strain tied to high inflation.

The CBK has, however, pointed to large corporate borrowers as the main drivers of bad loans —which stood at Sh491 billion end of September — as they struggle to move goods due to the constrained purchasing power due to inflation.

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