The Central Bank of Kenya (CBK) has stretched the duration lenders are allowed to keep its short-term loans from 28 days to three months in a bid to keep banks cash flush.
As the coronavirus crisis bites, workers will lose jobs and businesses shut down — cutting income streams even as loan defaults rise or remain suspended — banks will be under pressure with depositors seeking to withdraw.
Central bank allows banks to liquidate government bonds and bills holdings through a window called the repo (reverse repurchase agreements) market where lenders sell papers to the CBK with a promise to buy them later.
“As from today, we will extend the tenor of repos from 28 days all the way to 90 days. Our expectations are that within 90 days the uncertainty around corona may begin to clear and things would probably be moving where they should be,” CBK governor Patrick Njoroge said at the post-MPC briefing.
The governor said the CBK would also improve the efficiency of the interbank market to allow banks to borrow from each other to keep money flowing.
Although banks are flush with liquidity and capital adequacy ratios in February at 51.1 per cent and 18.7 per cent, respectively, coronavirus may drain the money. The CBK anticipated economywide defaults and asked banks to give personal borrowers up to 12-month holidays and restructure SME loans.
“The pain point of the coronavirus will be on personal loans. The objective now for the MPC is to ensure that the asset quality, which will be the first challenge, we stop it from becoming a liquidity problem,” Dr Njoroge said.