Banks Act as Loan Defaulters Hit Ksh366 Billion Mark

  • Central Bank of Kenya (CBK) building in Nairobi.
    Central Bank of Kenya (CBK) building in Nairobi.
    Simon Kiragu
    Kenyans.co.ke
  • Commercial banks in Kenya have began the process of pushing for payment of interest accrued on loans during the pandemic, with a majority of clients caught flat-footed, having signed up for the repayment holiday during the period.

    On October 1, Central Bank of Kenya (CBK) Governor Patrick Njoroge announced that the emergency measures that banks had been implementing, including rescheduling the repayment dates for borrowers distressed by the pandemic were officially over.

    “So from October 1, the banks will begin to look at the borrowers and assessing how they are doing in terms of their payments against their loans,” reads an excerpt from Njoroge's statement.

    Loans worth Ksh1.12 trillion were restructured, with borrowers distressed by Covid-19 pandemic asking their banks to change the terms of their credit facilities.

    Central Bank of Kenya Governor Patrick Njoroge addresses a news conference at the Central Bank's buildings on Tuesday, May 28, 2019.
    Central Bank of Kenya Governor Patrick Njoroge addresses a news conference at the Central Bank's buildings on Tuesday, May 28, 2019.
    File

    However, clients are now coming forward with statements on how they are now being prompted to pay up all the interest accrued during the 6-month holiday or risk having their loan falling into arrears.

    “The bank explained they had been loading up interest during the six-month period and this means I will end up paying up to Ksh24,000 more,” a businessman told the Nation.

    According to data in the latest CBK report, the proportion of defaulted bank loans hit a 13-year high of Ksh366 billion, reflecting the cash flow burden on workers and businesses brought about by the pandemic hardships.

    Non-performing loans (NPLs) rose from 12.5% to 13.1% - the highest since August 2007 when it stood at 14.41%.

    The latest Fitch Ratings projects that this figure will rise to 15% by the end of the year.

    ''We forecast that the sector's non-performing loans ratio will rise to about 15% by the end of 2020, and even higher in 2021 when debt relief measures are phased out,’’ the report reads in part.

    Despite the extra pressure generated by the reopening of schools coupled with a slow economic up-turn, banks are now writing to clients demanding payment of interest accrued during the pandemic.

    It is important to note that banks have complete autonomy to restructure loans or offer repayment holidays to their customers on a case-by-case basis. The Kenya Bankers Association have also come out to state that customers would be given a flexible payment plan.

    Kenyans are now scrambling to find a way to pay up all amounts due, to avoid costly repercussions.

    At least 1.72 million workers lost their jobs when the government imposed a lockdown to curb the spread of Covid-19.

    There are all indications that commercial banks will experience a significant increase in the number of loan defaulters 

    Jobseekers queue on Wabera Street, Nairobi, as they wait to be interviewed by The Sarova Stanley on May 26, 2018.
    Jobseekers queue on Wabera Street, Nairobi, as they wait to be interviewed by The Sarova Stanley on May 26, 2018.
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