Sixty-seven percent of borrowers prefer a one-year extension on their loans, a survey conducted by the Kenya Bankers Association (KBA) shows.
This signals that many Kenyans believe that their income-generating streams will emerge from the Coronavirus induced red within a 12-month time-frame.
KBA’s survey dubbed Spillovers and Feedback Loops: The Banking Industry’s Response Scenarios to the Effects of COVID-19 Pandemic also shows that majority of applicants will also seek revision of interest rates with interventions by the Central Bank of Kenya (CBK) expected to culminate to lower rates for borrowers.
The survey further notes that in view of the elevated risk profile of customers arising from the shocks associated with the pandemic, majority of banks are likely to remain cautious
This entwines with CBK statistics which show that the leading seven banks in the country restructured Ksh176 billion worth of loans in April alone.
KBA’s survey also shows that 94 percent of banks expect significantly slowed economic growth, which will negatively affect customers both at household and commercial levels
Sixty-five percent of the surveyed banks also expect customers to default on their loans with the quoted lenders forecasting Non- Performing Loans (NPLs) will increase to 14 percent from the current level of NPLs to gross loans of 12.4 percent.
KBA Chief Executive Officer Dr. Habil Olaka in a statement observed that CBK’s move to reduce required mandatory reserves has substantially made it easier for banks to restructure loans for their customers.
‘’Based on the initial assessments of applications from customers, the banking industry anticipates that many of its customers will seek loan rescheduling at the initial stages of the pandemic,” said Dr. Olaka.
Dr. Olaka indicated that a financial crisis in Kenya is unlikely due to the fact that the majority of banks had high levels of liquidity during the rate cap period, which effectively lifted at the end of 2019 with banks increasing their lending activity just two months before the pandemic.
‘’We anticipate the banking industry will remain sufficiently capitalized even under extreme stress. The capital adequacy will remain well above the regulatory requirements. That means, therefore, that banks are at a strong position to support businesses navigate the adversities associated with COVID-19 without risking systemic stability. That support is already evident,’’ said Dr. Olaka.
KBA Research and Policy Director Jared Osoro, on the other hand, said that the banking sector is already feeling the effects of the slowdown in the economy.
“Given the inherent link between the economy’s performance and that of the banking industry, and the financial sector as a whole, the effects of the pandemic are already evident. With the effect of the pandemic running both ways, the feedback loop of the economic performance is filtering to the financial sector and vice versa,” said Mr. Osoro.
This will inevitably lead to responses that seek to promote market stability, with the continued support of businesses and households,’’ he added.
