Businesses & Financial News

Kenyan banks set loan-recovery targets to administer debt

By Steve Umidha

Kenyan banks expect the sector to bounce back in two years, atleast, amid mounting concerns in non-performing loans, subdued demand and increasing credit risk brought by suppressed demand in the market.

But the task for local banks will be how to manage credit risk while at the same time continuing to lend to cash-stricken SMEs – in an economy whose recovery now hinges on dynamic small ventures.

“The Bank expects easing of measures to contain coronavirus as mass vaccination is achieved.

This will automatically open up businesses, people to return to work and businesses hiring people. The bank projects the phasing out of containment measures over one year period, with the economy bouncing back to its potential a year later,” notes the latest Total Tax Contribution of Kenya Banking Sector report.

The survey for the periods ending December, 31 201 and December, 31 2020 by the Kenya Bankers Association (KBA), shows that 44 percent of the 32 participating KBA – member banks were optimistic of meeting those targets, but that will depend on Government backing.

Indeed, data by the Central Bank of Kenya (CBK) indicates that since the Covid-19 pandemic hit in March 2020, loans amounting to Sh1.7 trillion were restructured by end February 2021 which accounts for 57 percent of the banking sector’s gross loans.

Following the resumption of repayments and some pay-offs, the outstanding restructured loans as at end February 2021 amounted to Sh 569.3billion or 19 percent of the total gross loans with over 95 percent of the outstanding restructured loans are being repaid.

During that period, many businesses and households experienced cash flow issues and income disruption because of the restrictive measures introduced by the National Government to contain the spread of coronavirus.

As a result, banks provided support for moratoriums on principal and interest loan payments to cushion against negative economic effects of the Covid-19 pandemic impact.

Labor market was also impacted with the unemployment rate rising sharply from 5 percent in the last quarter of 2019 to 21 percent at the beginning of June 2021. This was evident in employees’ total PAYE collected in the economy from Sh 412 Billion in 2019 to Sh 347 Billion in 2020 – a 16 percent decline.

A total of 604 firms in Kenya sent workers home due to the coronavirus fallout, according to Federation of Kenya Employers (FKE) which said that at least 33 jobs were lost in every modern sector company between March and August 2020.

The Kenya National Bureau of Statistics estimated that around 1.7 million people had been made redundant due to the outbreak during this time, a figure that FKE had termed as ‘conservative.’

While in November last year, the World Bank (WB) report christened, Navigating the Pandemic painted a disturbing picture showing that most employed Kenyans were on the verge of losing their daily source of income as a majority of companies faced a high risk of temporary or permanent closure and reduced revenues.

Kenyan labor force, particularly young people, are disproportionately employed in restaurants, entertainment joints, tourism sector which were largely shut down in March last year and remained closed through the three-month dry spell and beyond when the country went into a lockdown – with retail, another popular source of jobs for young people, also hit hard.

But there is a glimmer of hope judging by last week’s prediction of the latest Stanbic Bank Kenya Purchasing Managers Index (PMI) Survey – which showed an improved private sector activity in August with employers now hiring.

The upturn in job numbers for instance, was the quickest since May when the private sector recorded one of its best performances in the pandemic period.

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