FINANCIAL MUSCLE

Banks armed to support coronavirus hit sectors–KBA

Seven banks have restructured loans amounting to Sh176 billion.

In Summary

•Lenders however anticipate a decline in the banking business this year as the coronavirus continues to affect economic activity across all sectors.

•Trade, household credit, manufacturing transport and communication, tourism and construction among most exposed.

KBA CEO Habil Olaka with research and policy director Jared Osoro at a past media briefing./FILE
KBA CEO Habil Olaka with research and policy director Jared Osoro at a past media briefing./FILE
Image: COURTESY

Banks are in a solid position to support businesses wade through the  Covid-19 impact without risking a financial crisis, KBA chief executive Habil Olaka has said.

Lenders however anticipate a decline in the banking business this year as the coronavirus continues to affect economic activity across all sectors.

A Kenya Bankers Association (KBA) survey shows about 94 per cent of banks expect a significantly slowed economic growth, which will in turn negatively affect customers both at household and commercial levels.

 

"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," Olaka said.

Data released by the Central Bank of Kenya last week revealed that last month, the country's seven largest banks restructured loans amounting to Sh176 billion.

At least 1.2 per cent of the restructured loans accounted for personal or household loan accounts whose gross loans were valued at Sh811.90 billion as at March 2020.

“In general, the banking sector has started to feel the adverse impact of Covid-19 as a result,” CBK governor Patrick Njoroge told the Senate Ad Hoc Committee on the Covid-19 situation.

Majority of the loans restructured were in the tourism sector, which has suffered tremendously due to the coronavirus, at 31 per cent.

Others were real estate at 17.2 per cent, building and construction (17.0 per cent) and trade (12.4 per cent).

"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," Njoroge said.

 

Olaka noted that the reduction of the Cash Reserve Ratio (CRR) has substantially supported the loan restructuring process.

Out of the banks surveyed, 65 per cent expect non-performing loans (NPLs) to increase to 14 per cent from the current level of NPLs to gross loans of 12.4 per cent.

Earlier in the year, banks had pinned growth projections on strong business prospects driving up the country's economic growth.

This has however been undermined by adverse effects of coronavirus spread across the globe.

"The potential adverse effect on banks’ portfolio, both from a quality standpoint and a need for support perspective, is aligned to the extent of sector’s exposure," KBA director of research and policy Jared Osoro said.

He added that sectors including trade, household credit, manufacturing transport and communication, tourism, and construction taking a big share of the exposure from the disease were likely to be hit most.