Struggling borrowers force CBK to extend loan restructuring

The Central Bank of Kenya has extended the loan restructuring by commercial banks to ease pressure from struggling borrowers.

The relief measure first instituted in March last year has been extended to July but only covers loans which were being serviced by March 2, 2020, but went into arrears afterward

This, as the loan default rate, threatens to break a 15 per cent ceiling as projected by global credit rating firm, Fitch in August last year.

''We forecast that the sector's non-performing loans (NPL) ratio will rise to about 15 per cent by end-2020, and even higher in 2021 when debt relief measures are phased out,’’ said the global credit rating firm.

The tough social-economic situation presented by Covid-19 has crushed revenue both for households and businesses, making it difficult for borrowers to service credit facilities.

Last week, KCB Group reported a gross NPL for the year ended December 31, 2020 at 14.9 per cent.

In a statement, CBK asked lenders to give struggling borrowers up to July 3 to start repaying debt due.

''CBK will continue to closely monitor the unwinding of outstanding restructured loans to ensure the continued stability of the banking sector,'' the regulator said.

It revealed that loans worth Sh1.7 trillion, representing 57 per cent of banks' total loan book have been restructured since it announced the emergency measure mid-March last year to cushion borrowers from the vagaries of Covid-19.

After the easing of Covid-19 containment measures, borrowers resumed repayment of loans, bringing down outstanding restructured loans to Sh569.3 billion or 19 per cent of gross loan book as of last month.

At least 95 per cent of borrowers are now servicing debt owed.

According to CBK’s assessment, the emergency measures were highly effective and that borrowers were provided with various restructuring options including the extension of the repayment period, moratorium on principal or interest and waivers on interest or fees.

“The measures have provided space to borrowers to ride through the pandemic, mitigate job losses and pivot their business models to the new normal. For banks, the measures provided time to build additional capital and liquidity buffers to take them through the pandemic period and beyond,” CBK said.