Covid 19 impact on the Banking sector

Covid-19 Invokes responsible banking in Kenya

The emergence of the novel coronavirus pandemic (COVID-19) has brought to the fore some very positive aspects of the banking industry in Kenya with regard to the concept and practice of responsible banking.

Following the confirmation of the 1st case of COVID-19 in Kenya on March 12th, commercial banks and the Central Bank of Kenya acted promptly and on 18th March, 2020, at State House, Nairobi, announced a raft of measures that were aimed at alleviating the expected adverse impact of the disease as it spreads across the world.

Bank borrowers whose loan repayments were up to date as at March 2nd were to benefit as follows:

  • Banks would offer relief to personal loan customers if they were affected by the pandemic.
  • Personal loan borrowers would be granted extensions on their repayments for a period of up to one year if they made a request to their banks.
  • SMEs and corporate borrowers would also be granted relief upon agreements with their banks based on the effects on the pandemic on their businesses.
  • Banks agreed to meet all the charges relating to the restructuring and extension of all loans.
  • Commercial banks also agreed to waive all charges on mobile digital platforms.
  • All charges for transfers between mobile money wallets and bank accounts were also waived.

The Central Bank of Kenya also took regulatory measures that would alleviate the burden on commercial banks arising from the reliefs that they were extending to their customers. These measures included:

  • Lowering the Central Bank Rate (CBR) from 8.25% to 7.25% effectively signaling commercial banks to also lower lending and deposit rates.
  • Lowering of the cash reserve ratio from 5.25% to 4.25% , effectively reducing the amount of cash banks are required to deposit with the Central Bank thus giving the banks additional liquidity amounting to Ksh 35.2 billion.
  • Extending the maximum tenor of Repurchase Agreements (REPOs) from 28 to 91 days to enable banks to access longer term liquidity secured on their holdings of government securities without having to discount them.
  • Loan classification and provisioning for loans that were performing on March 2nd , 2020 and whose repayment period was extended or were restructured due to the pandemic would also be reclassified.
  • Listing on the Credit Reference Bureaus has also been suspended for the period of the pandemic.

These are really commendable policy actions coming hot on the heels of the Central Bank of Kenya initiated Banking Sector Charter (BSC) which became effective on 1st March, 2019.

The BSC seeks to entrench a culture of discipline, customer-centricity and responsiveness to the unique socio-economic realities facing the Kenyan banking public.

In a nutshell, bank customers, individuals, SME and corporates, have been shielded from the adverse effects of the marauding novel Coronavirus pandemic, which has disrupted global socio-economic standing.

Although the Banking Sector Charter (BSC) is applicable and relevant mostly to the normal day to day operations of the banking sector, it is creditable that commercial banks and the Central Bank of Kenya have responded as quickly as they have to this emergency situation. The magnitude of the socio-economic impact that COVID-19 will have locally and globally is yet not yet known, but there is no doubt that it will be bigger than WWII.

Clearly, Dr. Patrick Njoroge, the Governor of the Central Bank of Kenya and Mr. Joshua Oigara, the Chairman of the Kenya Bankers Association deserve commendation.

Photo caption: President Uhuru Kenyatta (right), Joshua Oigara, Chairman Kenya Bankers Association and Group CEO and MD of KCB (left) are all ears as Central Bank of Kenya Governor Dr. Patrick Njoroge announces measures aimed at alleviating the impact COVID- 19


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