This archive report was first published on 14 May 2020.
As the COVID-19 pandemic continues to affect economies worldwide, Kenya's banking system remains surprisingly resilient. According to the Kenya Bankers Association (KBA), this is largely due to the high levels of liquidity within the banking system.
Speaking on the matter, Dr. Habil Olaka, Chief Executive of the KBA, noted that the banking industry is well-capitalized and in a strong position to support businesses navigate the challenges associated with the pandemic. 'We anticipate the banking industry will remain sufficiently capitalized even under extreme stress,' Dr. Olaka said.
Earlier in the year, banks had projected growth based on strong business prospects, but the pandemic has forced them to restructure their portfolios to safeguard the quality of their loan books. The sectors most affected by this are trade, household credit, manufacturing, transport and communication, tourism, and construction, according to KBA Research and Policy Director Jared Osoro.
Despite this, the KBA expects non-performing loans (NPLs) to increase to 14% from the current 12.4%. However, data from the Central Bank of Kenya (CBK) shows that over KSh 17.6 billion worth of loans have already been restructured as banks renegotiate with distressed borrowers.
While the KBA expects business slowdown as a result of the pandemic, the association remains optimistic about the banking industry's ability to withstand the crisis. In partnership with the CBK, the KBA has moved to provide a cushion to financially distressed bank borrowers, with the reduction of the Cash Reserve Ratio (CRR) supporting the loan restructuring process.
According to the survey, majority of loan applicants will seek restructuring of tenor and interest rates relief, with an appropriate monetary policy stimulus leading to lower interest rates. The popular tenor extension is anticipated to be one year, given the elevated risk profile of customers arising from the pandemic.
