Banks have up to Friday this week to submit details of all loans renegotiated under the payment relief to support businesses and individuals during the coronavirus pandemic.
The Central Bank of Kenya (CBK) has put strict measures to track loans that will be given extension including monthly reports by banks with details showing why the relief was offered, monitoring measures and set timelines for loans revert to normal.
A CBK circular says lenders will meet all the costs of restructuring and must submit returns on 10th of each succeeding month.
“The initial return for the month ending March 31, 2020, will be due on or before April 10, 2020,” said director of banking supervision Gerald Nyaoma.
The CBK said individuals and small businesses seeking amnesty must prove that inability to pay is directly tied to the effects of coronavirus.
Banks will then be allowed to restructure the loans without affecting the quality of loan books as they will be exempt from prudential guidelines on classifying non-performing loans.
Normally banks are required to set aside part of profits to cover non-performing loans, hence a cost to the bank.
As of December last year Kenyans had defaulted on Sh331.3 billion, 12 per cent of the total Sh2.774 trillion outstanding loans.
Central Bank says dud assets as a fraction of total loans had increased to 12.7 per cent in February just before the impact of coronavirus stated hitting the economy with job losses, business shut down and demand muted.
Governor Patrick Njoroge said widespread defaults posed a danger to the banking system.
He lowered the Central Bank Rate 100 basis points to reduce what banks pay on deposits, reduced the amount of deposits banks keep at CBK from 5.25 per cent of their deposits to 4.25 per cent and extended borrowing window for banks on the repo market from one month to three months.
“The pain point of the coronavirus will be on personal loans. The objective now for the MPC is to ensure the asset quality, which will be the first challenge, we stop it from becoming a liquidity problem. If people are let go, job losses lead to difficulty in repayment and significant anxiety and stress. Banks are liquid, there is overall liquidity but we could end up getting pockets of tightness of specific institutions or specific areas,” he said.