The Central Bank of Kenya (CBK) said lenders had reviewed loans worth Sh1.63 trillion or 54.2 percent of the total Sh3 trillion loan book at the close of last December, up from Sh1.38 trillion or 46.5 percent of total loans at the end of October.
The pile-up of restructured loans—mostly in the form of repayment holidays and extended maturity periods—points to persevering economic fallout among borrowers and amplifies the risk of loan defaults.
Banks have now restructured more than half of their total loan books, highlighting the persistent economic hardship facing businesses and households due to the disruptions caused by the Covid-19 pandemic.
The Central Bank of Kenya (CBK) said lenders had reviewed loans worth Sh1.63 trillion or 54.2 percent of the total Sh3 trillion loan book at the close of last December, up from Sh1.38 trillion or 46.5 percent of total loans at the end of October.
The pile-up of restructured loans—mostly in the form of repayment holidays and extended maturity periods—points to persevering economic fallout among borrowers and amplifies the risk of loan defaults.
Personal and household loans topped the list of debt restructured since March 18 last year when the banking regulator allowed lenders to offer relief to distressed customers after the country reported its first case of the coronavirus.
The CBK said Wednesday that banks had by end of December extended the repayment period of personal and household loans worth Sh333 billion—an equivalent of 39.6 percent of total loan book in the sector.
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 layoffs.
About 1.72 million workers lost jobs in the three months to last June when Kenya imposed a lockdown to curb the spread of the coronavirus and recovery has been slow, with salary cuts persisting in many sectors.
The CBK said lenders reviewed Sh1.29 trillion of business loans in the period to December, with firms in the trade, manufacturing, real estate and agriculture topping the list of applicants for reliefs.
About 21.3 percent of loans in the trade category have been restructured followed by manufacturing (20.4 percent), real estate (15.4 percent) and agriculture (12.4 percent).
This came as the CBK Monetary Policy Committee (MPC) said it had decided to hold its benchmark lending rate -- which signals the pricing of loans -- at seven percent, noting that the package of policy measures implemented since March remain appropriate.
Struggling individuals and companies had from March last year been allowed to 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 applied to credit card debt and mortgages.
However, several lenders have reported repeated requests for loan reviews— prompting them to further extend the debt repayment periods amid persisting economic hardships.
Growth in private sector credit stood at 8.4 percent in December as demand recovered with the improved economic activity.
The CBK said there was strong credit growth in consumer durables (18.1 percent), agriculture (15.3 percent), transport and communications (13.6 percent) and manufacturing (12 percent).
The credit growth, however, remained well below the central bank’s target rate of 12-15 percent, deemed adequate for supporting economic development.
“The imminent operationalisation of the Credit Guarantee Scheme for the vulnerable micro, small and medium-sized enterprises will de-risk lending by commercial banks, and is critical to increasing credit to this sector,” said CBK.
The banking regulator said Wednesday, without giving figures, that the latest leading indicators point to a recovery particularly in the fourth quarter of 2020, from the disruptions earlier in the year.
CBK governor Patrick Njoroge added that the economy was expected to rebound strongly this year, supported by resilience in agriculture, and recovery in manufacturing and services such as education.
“This recovery is supported largely by strong performance in the agriculture and construction sectors, resilient exports, and continued recovery in manufacturing and services,” he said.
