Kenya’s biggest banks restructure Sh176bn loans on coronavirus

Central Bank of Kenya (CBK). FILE PHOTO | NMG 

By VICTOR JUMA
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Summary

• Kenya’s seven largest banks in April restructured loans worth Sh176 billion or 6.2 percent of the industry’s total gross loan book of Sh2.8 trillion, underlining the economic fallout from the spread of the coronavirus that has hurt borrowers’ ability to repay.
• Early indications of the impact of the crisis on the banking sector was disclosed by the Central Bank of Kenya (CBK) to the Senate Ad Hoc Committee on the Covid-19 Situation.
• Most of the restructured loans are in the tourism sector, which suffered from the suspension of international flights into and out of the country starting mid-March.

Kenya’s seven largest banks in April restructured loans worth Sh176 billion or 6.2 percent of the industry’s total gross loan book of Sh2.8 trillion, underlining the economic fallout from the spread of the coronavirus that has hurt borrowers’ ability to repay.

Early indications of the impact of the crisis on the banking sector was disclosed by the Central Bank of Kenya (CBK) to the Senate Ad Hoc Committee on the Covid-19 Situation.

Most of the restructured loans are in the tourism sector, which suffered from the suspension of international flights into and out of the country starting mid-March.

“In general, the banking sector has started to feel the adverse impact of Covid-19 as a result of slowdown in most economic sectors,” the regulator told the committee.

“In April 2020, the seven largest banks restructured loans amounting to Sh176 billion.”

Requests for extension of personal loans and restructuring of other credit are expected to ramp up in the coming months if the pandemic continues to penetrate, the CBK said.

Loan restructuring means that the terms of the credit facilities are changed, including one or a combination of suspending interest, principal, change of collateral or extension of the tenor.

The trend implies bank earnings will take a major hit this year from a mix of lost interest income and increased provisioning for the piling bad debt.

To soften the blow on the lenders, the CBK said it will be more flexible with regard to requirements for loan classification and provisioning for loans that were performing on March 2 and whose repayment period was extended or were restructured due to the pandemic.

The tourism industry leads in a group of 10 sectors that has renegotiated a total Sh81.5 billion worth of loans, according to the CBK.

“In the other 10 sectors, most of the loans restructured were for tourism (31 percent), real estate (17.2 percent), building and construction (17 percent) and trade (12.4 percent),” the regulator said.

Households on the other hand had Sh9.8 billion of loans restructured as small businesses suffered lost income and thousands of employees were sacked or had their salaries reduced.

The CBK also disclosed that distressed borrowers had taken new loans amounting to Sh17.5 billion, made possible by its lowering the amount of cash that banks have to hold in relation to their deposits. The regulator lowered the cash reserve ratio (CRR) to 4.25 percent from 5.25 percent.