65% Of Kenyan Borrowers To Default Loans This Year, KBA

A new survey has revealed that a good number of Kenyan borrowers estimated at 65 percent are likely to default their loan repayments in 2020 attributed to the effects of Covid-19 on the economy.

The survey by the Kenya Bankers Association noted that the effects of Covid-19 on the economy have prompted lenders to be more cautious in giving out loans as non-performing loans are also expected to increase this year.

Bankers project that non-performing loans will increase to 14 percent by the end of the year from the current 12.4 percent.

“The survey further notes that in view of the elevated risk profile of customers arising from the shocks associated with the pandemic, majority of banks are likely to remain cautious, “said KBA in the report dubbed “Spillovers and Feedback Loops: The Banking Industries Response Scenarios to the Effects Of Covid-19 Pandemic.”

In the KBA survey, 67 percent of borrowers will seek a one-year extension on their loans as most Kenyans believe that Covid-19 will affect their income-generating streams.

This projection is backed up by statistics from the Central Bank of Kenya that show seven leading banks have restructured 176 billion shillings worth of loans in April after getting requests from their customers.

“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,” argued KBA chief Dr. Habil Olaka.

94 percent of the Kenyan banks expect a slowed economic growth this year which will negatively affect customers.

Most lenders had high levels of liquidity during the rate cap period that was lifted at the end of 2019. The situation got worsened since banks increased their lending activity just months to the crisis.

KBA says the banking sector will remain stable and efficiently capitalized even under extreme stress.

“The capital adequacy will remain well above the regulatory requirements. That means, therefore, that banks are in a strong position to support businesses to navigate the adversities associated with COVID-19 without risking systemic stability. That support is already evident,’’ said Dr. Olaka.