Capital Markets

Sh569bn loans risk CRB listing as virus reliefs end


Central Bank of Kenya. FILE PHOTO | NMG

Borrowers holding restructured loans worth Sh569.3 billion risk listing with credit reference bureaus (CRBs) after the Central Bank of Kenya (CBK) allowed banks to review debt for those hit by the Covid-19 pandemic.

The CBK Tuesday said that March 2 marked the end of the period for the loan repayment reliefs extended to borrowers facing  economic hardships related to the pandemic.

The regulator allowed banks to reschedule payments for customers days after the first Covid-19 case was reported in Kenya on March 13, 2020.

Borrowers who still have outstanding restructured loans will have until June 3 to regularise them, paving the way for blacklisting of defaulters with CRBs from September.

The regulator said that the Sh569.2 billion or a third of the Sh1.7 billion loans that had been restructured at the height of the crisis will not enjoy the relaxed terms, including suspension of interest payments.

“In accordance with standard procedures, borrowers whose loans were performing before March 2, 2020 but were restructured and subsequently went into arrears, will have three months (up to June 3, 2021) to regularise their loans,” said the CBK.

Defaulters look set to appear in the books of Kenya’s three CRBs — Metropol, TransUnion and Creditinfo International— from September after the expiry of the 90-day notice.

The number of loan accounts negatively listed with CRBs hit 14 million in January this year, underscoring the struggles Kenyans are having with repayments.

Blacklisted accounts jumped 45 percent in the five months between August and January after the CBK lifted a three-month listing moratorium.

Data from CRBs showed that the number of loans accounts in arrears for more than 90 days had jumped to 14,035,718 by January this year, up from 9,673,258 in August 2020.

Loan defaults between March 2020 – when the first coronavirus case was reported in Kenya — and December stood at Sh71.26 billion and the strain on banks’ balance sheets is expected to persist for months ahead.

The one-year period for the emergency loan restructuring measures had softened the blow on many borrowers who suffered sudden pay cuts and retrenchments as firms sought survival in a period of tumbling revenues.

Official data showed that about 1.72 million workers lost jobs in the three months to June when Kenya imposed a lockdown to curb the spread of the coronavirus, slowing down business activity and triggering large-scale layoffs and pay cuts.

Many workers who had tapped unsecured loans on the strength of their salaries to purchase goods such as furniture and cars and meet expenses like school fees have struggled to keep up with repayments in the wake of retrenchments and pay cuts.

Companies that had borrowed based on the forecast of cash flows have also been struggling to repay their bank loans, even as they defer capital projects such as launching new products or extending supply in new areas.

While the economy is showing signs of recovery, firms are yet to roll back the pay cuts and freeze in hiring.

The CBK yesterday noted that over 95 percent of the outstanding Sh569.3 billion restructured loans were being repaid in accordance with the softened terms.

Reinstatement of older terms means thousands of borrowers will be expected to put up with higher loan servicing costs.

The loan relief initiative is among the last stimulus policy measures to be unwound by the government.

Authorities reimposed charges on mobile phone-based transfers of small amounts of cash at the end of last year, having removed them in March to encourage cashless transactions and curb the spread of the virus.

In January, the government also reversed payroll and income tax cuts, unveiled last April to prop up demand in the face of the economic shocks caused by the pandemic.

Kenya, which had reported 123,167 cases of Covid-19 infections and 2,048 deaths by yesterday, is currently gripped by a third wave of infections, which is stretching its health facilities.

Economic growth slowed to 0.6 percent last year, initial estimates show, well below the government’s earlier forecast of 6.2 percent, as the pandemic hit tourism, suppressed exports and eroded jobs. Official data for the full year are due next month.