Firms, workers get Sh17bn corona rescue loans

Individuals and businesses borrowed coronavirus rescue loans totalling Sh17.59 billion from banks’ extra cash reserves in April, underlining the effects of the viral disease on cash flows in the economy.

Central Bank of Kenya (CBK) data reveals that cash-starved companies and households tapped half of the loans made available from the end of March for borrowers affected by the impact of the global coronavirus pandemic which has created both a health and economic crisis.

On March 23, the banking regulator reduced the cash reserve ratio for commercial banks to 4.25 percent of their total deposits, down from 5.25 percent, saying the move released an extra Sh35.2 billion for lending to customers hit by the disease and the restrictions put in place to slow down its spread. Kenya reported its first Covid-19 case on March 12.

The extra cash following the cut of the cash reserve ration had increased to Sh53.9 billion by April 25, partly due to stringent borrowing terms imposed by the banking regulator.

CBK is controlling the coronavirus rescue loans and has directed banks to submit a list, including borrowers’ names, economic sector, amounts and the reasons for borrowing.

These details have to be submitted before the borrowers can access money from the reserves generated from reduced cash holdings requirements for banks. The strict guidelines are meant to guard against the banks using the extra billions to lend to profitable firms or to government through purchase of Treasury bills and bonds.

“With 50 percent having been used in just one month, (this) depicts the increased demand for funding,” CBK Governor Patrick Njoroge told MPs.

Hotels and businesses linked to the tourism sector borrowed Sh8.02 billion - or nearly half of the funds - reflecting the impact restrictions on travel and mass gatherings have had on the hospitality sector. High-end hotels stopped operations in March in the wake of travel restrictions and social distancing rules introduced by the government to curb the spread of the coronavirus.

The agricultural sector is the second largest borrower, with loans totalling Sh2.94 billion while the real estate sector was third at Sh2.1 billion. The three sectors accounted for more than 74 percent of the initial Covid-19 loans. Businesses in trade accessed Sh1.8 billion while manufacturers borrowed Sh1.29 billion from the kitty.

Individuals plagued by layoffs, pay cuts and unpaid leave tapped another Sh593.7 million.

“In order to access the additional liquidity occasioned by the reduction of CRR (cash reserve ratio) banks, mortgage and microfinance banks will be required to submit their requests... with necessary supporting documents, detailing how the borrowing funded by the reduced amount of CRR is related to Covid-19,” CBK said in a circular seen by the Business Daily.

This presents a rare occasion when banks will have to seek CBK approval on whom to lend to. Kenya Bankers Association (KBA) - the bankers’ lobby - said they will be forwarding loan application forms to CBK.

This is the first time since 2008 - at the peak of the global financial crisis and the deepest world recession for a generation - that CBK has cut the cash reserve ratio. The extra billions will provide banks with low-cost funds for cheap loans and lending to households and homes are expected to suffer reduced cash flow due to the virus.

Kenya has reported 700 confirmed coronavirus cases and 33 deaths. Tourism and agricultural exports businesses have already been hit by the impact of the global pandemic, including the resultant restrictions on international flights.