Banks now go for loan defaulters in a bid to secure Sh 366 billion

Loan defaulters are set to feel the heat as Commercial banks in Kenya begin the process of pushing for payment of interest accrued on loans during the covid-19 pandemic.

 Majority of the defaulters had signed up for the repayment holiday during the period.

Central Bank of Kenya (CBK)  announced on October 1 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 rescheduled, due to the hard economic times in the pandemic.

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 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.

 However with massive job losses to to the stagnating economy its projected that banks may record more defaulters than its witnessed.