Kenya’s Central Bank gives borrowers 3 months to regularise bank loan repayments

Kenya’s Central Bank has given borrowers a three-month window to regularize their loan repayments, following the expiry of a one-year grace period during which lenders had extended and restructured loan repayments for customers impacted by the COVID-19 pandemic. This move comes as the country grapples with the economic fallout of the pandemic and seeks to navigate the challenges ahead. Chief Economist at Mentoria Economics, Ken Gishiga, shed light on the implications of these measures and the need for a nuanced approach to address the diverse impacts across sectors. The banking sector has faced significant challenges over the past year as job losses and economic hardships led to an increase in non-performing loans. This, in turn, affected the profitability of many banks, prompting the need for emergency measures to support borrowers. While the initial unity of purpose from various stakeholders in addressing the crisis was evident, there is now a divergence in messaging regarding the state of the economy and the ongoing risks posed by the pandemic. Gishiga pointed out that different sectors have been impacted in varying ways, with some experiencing growth while others continue to struggle. This disparity underscores the importance of a sectoral analysis to guide policy decisions and ensure an equitable response. The move by the central bank to grant borrowers a three-month period to regularize their loan repayments has sparked concerns about the feasibility of this timeline for all borrowers. With some sectors still grappling with restrictions and economic challenges, there is a call for a more targeted approach that takes into account the unique circumstances of each sector. Moreover, the evolving nature of risks in the market necessitates a revision of policies and approaches by financial institutions. While managing risk is inherent to the nature of banks, the changing landscape demands a proactive stance in understanding and mitigating emerging risks. As the economy moves towards full reopening, the need for flexibility and adaptability in financial policies becomes increasingly crucial. The regulatory environment may have tightened in recent times, but it is essential for banks to engage in discussions on recalibrating strategies to navigate the uncertainties ahead. Ultimately, collaboration between stakeholders, clear communication, and a tailored approach to address sector-specific challenges will be key in driving economic recovery and stability in Kenya.