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Workers get Sh190bn in Corona loan reliefs

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Treasury Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • Personal loans account for more than half of the Sh360 billion worth of loans that have been restructured by workers and small businesses.
  • CBK allowed lenders to offer relief to distressed customers in mid-March after the first case of Covid-19 was reported.
  • The move was meant to ease the pain of Corona-related hardships and cut risk of loan defaults.

Job and pay cuts in the wake of the Coronavirus global pandemic have forced workers to restructure bank loans worth Sh190 billion, highlighting the impact of the virus on the Kenyan economy.

Treasury Secretary Ukur Yatani has said that personal loans account for more than half of the Sh360 billion worth of loans that have been restructured by workers and small businesses that need urgent help to survive the economic slowdown caused by the viral disease.

The reviewed loans are equivalent to 12.86 percent of the lenders’ loan book of Sh2.8 trillion as at end of May, underlining the impact of the health crisis on the bank’s businesses and borrowers’ financial situation.

Central Bank of Kenya allowed lenders to offer relief to distressed customers in mid-March after the first case of Covid-19 was reported. The move was meant to ease the pain of Corona-related hardships and cut risk of loan defaults.

“Since March, banks have restructured loans in excess of Sh360 billion, including Sh190 billion of personal loans,” Mr Yatani said. 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 so far reported 3,727 positive Covid-19 cases and 104 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 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 and disrupts supply chains and domestic production.

The government closed bars, places of worship and schools to slow down the spread of the virus after the country reported its first positive case on March 12.

These measures have impacted on consumer spending, setting the stage for job cuts and unpaid leave for workers as companies race to cut costs.

The loss of earnings has made it difficult for workers who borrowed loans on the strength of their payslips to meet their obligations.

Absa Kenya, which had restructured Sh54 billion of loans or about 26.7 percent of its net loans at the end of March, says small traders and unsecured personal credit account for 90 percent of its reviewed credit.

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 and school fees.

Firms that had borrowed based on the forecast of cash flows have also been struggling to repay their bank loans.

The CBK said that despite the loan restructurings, banks default rates are on the rise, reflecting the cash flow burden on workers and businesses

Regulatory data shows that the ratio of non-performing loans (NPLs) rose from 12.5 percent to 13.1 percent — the highest since August 2007 when it stood at 14.41 percent.

Banks have failed to offer pointers on the potential impact of the loan restructuring on banks’ earnings this year.

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 had 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.