Pay cuts force workers to restructure Sh102bn loans

Patrick Njoroge
Central Bank of Kenya Governor Patrick Njoroge. PHOTO | COURTESY 

Job and pay cuts in the wake of the Coronavirus pandemic have forced workers to restructure bank loans worth Sh102 billion by the end of April, highlighting the impact of the disease on the Kenyan economy.

The Central Bank of Kenya (CBK) Thursday disclosed that 29 banks have reviewed the terms of personal loans equivalent to about 13 percent of credit offered to workers on the strength of their pay slips.

The bulk of the restructured personal loans involve placing a moratorium on both interest and principal payments for up to one year, CBK Governor Patrick Njoroge said during a panel discussion hosted by the Kenya Private Sector Alliance (Kepsa).

“Most of the loans extended were for 9 to 12 months, which accounted for 47.7 per cent of the personal and household sector loans extended,” Dr Njoroge said.

The CBK allowed lenders to offer relief to distressed customers in mid-March after the first case of the Covid-19 was reported to ease the pain of coronavirus-related hardships and bank defaults. The bankers had by the end of April restructured loans worth Sh273 billion.


Unsecured loans topped the list of restructured loans followed businesses in the trade sector at Sh44.8 billion, real estate (Sh31.6 billion) with tourism and manufacturing sector tying at 23.1 billion.

Under the CBK’s initiative to offer relief to borrowers, struggling individuals and firms can take a three-month repayment holiday, lengthen the tenure of their loans, or opt to just pay the interest for a period of time. Kenya has reported 1, 109 positive Covid-19 cases and 50 deaths.

The crisis has shut down the country’s vital tourism sector, hammered its fresh produce exports and severely disrupted other sectors like construction, trade and transportation.

The government closed bars and schools to slow down the spread of the virus after Kenya reported its first coronavirus case on March 12. The impact of social distancing and closure of businesses like bars and restaurants has impacted on consumer spending, setting the stage for job cuts and unpaid leave for workers as companies race to cut costs.

The World Bank forecasts that Kenya’s economic growth will slow down to 1.5 percent this year, and contract one percent in the worst-case scenario as the virus saps demand from trading partners like Europe, as well as disrupt supply chains and domestic production.

Thousands of workers had taken out a combined Sh780 billion in loans, mostly without collateral, for short-term needs like buying furniture, vehicles and urgent family expenses like healthcare. Without jobs or adequate earnings, banks expect loans defaults to also mount.

Joshua Oigara, the chief executive of KCB Group #ticker:KCB, told the Business Daily recently that the impact of Covid-19 would be felt on earnings from the first quarter through increased provisions for bad debts.

Dr Njoroge said that despite the loan restructurings, default rates are on the rise, hitting 13 percent in April from 12.5 per cent in March.

Effects of the infectious disease on the economy are becoming apparent with the disclosure of April business data.

The number of new vehicles sold in Kenya slumped by almost half last month from the same period a year earlier due to the crisis, an industry association said on Wednesday.

The industry, which is dominated by Isuzu East Africa and Toyota, said 594 new units were sold during the period, down from 1,127 units sold in April last year. Consumption of electricity dropped 13.2 percent or by 129.5 million units last month as the pandemic hit consumer demand and forced firms and industries to cut back on their operations.

The Energy and Petroleum Regulatory Authority (EPRA) said electricity consumption dropped from 978.1 million kilowatt-hours (kWh) in March to 848.6 million kWh in April—the lowest monthly use of power in 32 months.

This is the first full month data on power consumption after Kenya imposed a daily dusk-to-dawn curfew on March 27 and restricted movement in and out of four counties worst hit by the pandemic, including Nairobi.

A national survey conducted by the Kenya National Bureau of Statistics (KNBS) on the impact of the disease on Kenyans revealed that a third of households failed to pay their April rent.

About 21.5 percent of those who defaulted said they had always met their obligations on time, highlighting the impact of restrictions to curb the global Covid-19 pandemic on workers’ incomes.

CBK did not comment on the potential impact of the loan restructuring on banks’ earnings this year.