Few Kenyans get relief on loans as banks play hardball

Central Bank of Kenya Governor Patrick Njoroge. CBK has directed banks to offer relief to customers serving loans.

Banks have been slow to extend relief to distressed customers servicing loans resulting to just a fraction of the loans being restructured.

A Central Bank of Kenya (CBK) report notes that only 6,430 retail customers have received relief. This amounts to a meagre 1.2 per cent, or Sh9.9 billion worth of personal loans, whose payment periods have been extended.

The banking industry, together with CBK in March this year announced that banks would give breaks on loan repayments to customers affected by Covid-19 and cannot keep up with the repayments in the short term.

Tough requirements by banks have, however, denied Kenyans the chance to get some relief even as they get a major beating from the coronavirus outbreak.

Among small and medium businesses, CBK said, 1,841 loan accounts have successfully requested their banks to restructure loans amounting to Sh81 billion.

The apex bank noted that the seven largest banks had by end of April restructured loans amounting to Sh176 billion.

It expects the number of people and businesses seeking relief from lenders to spike in the coming months, but also noted that the banking sector had started feeling adverse effect of the Covid-19 as a result of a slowdown in most sectors.

“The personal or household loan accounts extended accounted for 1.2 per cent of the total personal/household sector gross loans of Sh811.9 billion as at March 2020," said CBK when it made a presentation to the Senate Ad Hoc Committee on Covid-19 yesterday.

"In the other 10 sectors, most of the loans restructured were for tourism (31 percent), real estate (17.2 percent), building and construction (17.0 percent) and trade (12.4 percent).”

CBK continued: "Requests for extension of personal loans and restructuring of other sectors' loans are expected to ramp up in coming months if the pandemic continues to penetrate.”

Central Bank in March instructed banks to provide relief to Kenyans and businesses which had taken loans that were up to date as of March 2.

Among the relief measures included an extension of the loan repayment period by up to an year for banking customers with personal loans, and restructuring of loans by SMEs based on their unique situation and how hard they had been hit by the pandemic.

The banks were to meet the costs related to the extension and restructuring of loans. Banks were also asked to waive certain charges such as balance inquiry through digital platforms.

While there have been instances where banking customers have got relief, many more have faced a tough time convincing their banks that their salaries have been slashed or revenues for their businesses tumbled due to factors directly related to Covid-19.

The banks have imposed stringent measures for borrowers, making it difficult for many of their customers in distress to take advantage of the measures that were announced.

Other measures that CBK had announced in March to help the banking sector, and the economy generally, cope with coronavirus was the reduction of the Cash Reserve Ratio (CRR) to 4.25 per cent from 5.25 percent.

This would release Sh35.2 billion to banks to directly support borrowers that were in distress as a result of the pandemic.

CBK in its presentation to the Senate Committee additionally said as at end of April 2020, 11 commercial banks and one microfinance bank had been granted approval to access Sh17.6 billion freed from the reduction in CRR.

"This accounted for 50 per cent of the Sh35.2 billion freed by the one percent reduction in CRR. With 50 per cent having been used in just one-month, it depicts the increased demand for funding from the banking sector," said CBK.

"Some of the sectors funded are Tourism (45.58 percent), Agriculture (16.7 percent), Real Estate (11.94 percent) and Trade (10.37 percent)."

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