KCB Group #ticker:KCB has restructured loans worth Sh80 billion in Kenya, offering reprieve to customers who found it difficult to repay their loans due to the impact of the coronavirus.
The amount is equivalent to 15 percent of KCB’s Sh535.3 billion total loan book as of December 2019. It also represents 45 percent of the total Sh176 billion loans renegotiated with the country’s top seven largest lenders including Equity Group #ticker:EQTY, Co-op Bank #ticker:COOP and NCBA Group #ticker:NCBA.
“As KCB we have restructured loans running into Sh80 billion,” said Joshua Oigara, chief executive of the country’s biggest bank by assets.
“This is mainly in the form of a three-month moratorium on interest and principal.”
The loan restructurings were brokered by the Central Bank of Kenya (CBK) after it became clear that many households and corporate borrowers would struggle to meet their obligations.
KCB’s chunk of renegotiated loans is the biggest by far in both absolute terms and as a proportion of its total loan book.
Standard Chartered Bank Kenya announced its customers have renegotiated the terms on Sh8 billion loans amounting to six percent of its total lending.
Absa Kenya also disclosed that it has restructured Sh8.3 billion loans or 4.2 percent of its total loan book.
Bank earnings from the mainstay lending business is set to drop significantly this year on the move to defer interest and principal on loans, among other changes to the credit terms.
Lenders are also expected to raise their provisions for the growing bad debt, mostly from the decimated tourism industry.
To soften the blow on the lenders, the CBK said it would be more flexible with regard to requirements for loan classification and provisioning for loans that were performing on March 2, 2020 and whose repayment period was extended or were restructured due to the pandemic.
“You will start to see early impact on bank earnings through increased provisions in the first quarter (ended March),” said Mr Oigara.
“But the second quarter is when the trend will become more apparent,” he said, referring to the delayed feedback from the general economy to the banking sector and the CBK’s breather.
Mr Oigara added that due to the increased risk of defaults, banks have become more conservative and are currently prioritising investment in government debt and lending to select industries such as telecommunications and healthcare.
The CBK has said that requests for extension of personal loans and restructuring of other sectors’ obligations are expected to ramp up in coming months if the pandemic continues to penetrate.