When the Central Bank of Kenya announced in March that lenders would offer a repayment holiday on personal and business loans distressed by the Covid-19 pandemic, there was excitement among many borrowers.
A big number were only coming to terms with sudden loss of income following tough economic shutdowns. To cushion borrowers, the banking sector regulator announced that all loans as of March 2, 2020 would be eligible for short repayment holidays or rescheduled payments of up to a year.
Among those beaming with relief at the time was 34-year-old Munyaka Njiru, who rushed to his bank to take advantage of the deal.
Mr Njiru, the proprietor of Bucketlist Adventures, a tour firm, said yesterday he saw the repayment holiday as a huge relief on his outstanding car loan. The hospitality sector was one of the hardest hit as the pandemic suspended international and local transport.
But Mr Njiru now says the relief has turned into a nightmare. He regrets that if he knew then what he knows now, he would not have signed on to the deal allowing him a break from repaying his Sh200,000 loan balance.
After six months, the bank recently wrote to Mr Njiru demanding interest of upto Sh24,000 that had piled up over the repayment holiday period. "The deal with my bank would have been a huge relief for me. But it has turned into a raw deal," Mr Njiru told the Nation.
"The bank explained they had been loading up interest during the six-month period and this means I will end up paying upto Sh24,000 more," he said, expressing his disappointment with the whole State-backed relief programme. The bank has asked him to pay Sh45,000 at once, failing which the loan will be considered to have fallen into arrears.
Under CBK's initiative, individuals and companies could take a repayment holiday, lengthen the tenure of their loans, or opt to just pay the interest for a period of time. The relief also applied to credit card debt and mortgages.
"I would not have signed up if I knew I would eventually pay more," said Mr Njiru, echoing the sentiments of many unsuspecting borrowers who aimed to take advantage of the relief programme.
Banks appear to have taken advantage of a broad guideline by the CBK, which allowed the lenders to restructure loans by either freezing interest payments, or fees, or offering a moratorium on interest or the principal repayments.
Borrowers who spoke to the Nation and others who have expressed their frustration on social media platforms say they were emboldened by the general wording of the regulators' announcement, but they now accuse the lenders of having failed to disclose the full meaning of the supposed relief plan.
"Banks will meet all the costs related to the extension and restructuring of loans," said CBK's Bank supervision head, Gerald Nyaoma, in a circular to the lenders dated March 27.
Another borrower who is repaying a Housing Finance mortgage, however, says he spurned the restructuring offer after realising that he would end up paying more.
"I cancelled my application for relief after the customer care agent advised me that interest would continue accumulating on my loan even after signing the repayment holiday," said the HF mortgage borrower, who requested anonymity.
The CBK had not responded to Nation's queries by press time.
In a statement to the Nation, the Kenya Bankers Association said lenders had the leeway to restructure loans or offer repayment holidays to their customers on a case-by-case basis. "CBK provided the policy framework for banks to work with their clients with the prioritisation being the sectors hardest hit by Cocid-19; the cash reserve ratio reduction freed up liquidity for banks to work with clients on an individual basis to restructure facilities. KBA would not be in a position to give a unilateral directive on how banks restructure facilities," said the bankers' lobby organisation in response to the Nation.
The Interest Rates Advisory Centre managing director, Wilfred Onono, said there is need for complete transparency on the part of banks in the implementation of the State-backed Covid-19 loans relief programme if it is to achieve its desired results. "A loan contract is between two parties... but banks should follow and adhere to guidelines set out by the regulator regarding loans," said Mr Onono.
Banks had restructured loans worth Sh1.12 trillion or 38 per cent of the total industry loan book by the end of August to cushion their customers from the coronavirus-induced economic hardships that had hurt their ability to repay.
"We see a situation in which banks engage in more predatory injury on consumers in the name of loan restructuring that never was or at best a restructuring that earns more pain on the consumer and a gain on the lender," said the Consumer Federation of Kenya secretary-general Stephen Mutoro.
1.72 million lost jobs
Personal and household loans top the list of restructured debt, with Sh271 billion reviewed since March or a third of the total loans whose terms have been changed.
This reflects the financial struggles of many workers who had borrowed loans on the strength of their pay slips only to later suffer pay cuts, unpaid leave or even layoffs. Official data shows about 1.72 million workers lost jobs in three months to June when the government imposed a lockdown to curb the spread of the virus, slowing down business activity and triggering large-scale layoffs and pay cuts.
A Kenya National Bureau of Statistics report shows the number of people in employment fell to 15.87 million between April and end of June compared to 17.59 million in the previous quarter.
The proportion of defaulted bank loans has hit a 13-year high, reflecting the cash flow burden on workers and businesses brought about by the pandemic hardships.
CBK data shows that the ratio of non-performing loans (NPLs) rose from 12.5 per cent to 13.1 per cent -- the highest since August 2007 when it stood at 14.41 per cent.
Defaulted loans -- which is credit that remains unpaid for more than 90 days - jumped by Sh11.1 billion to stand at Sh366.8 billion in April, when restrictions imposed to limit the spread of Covid-19 hit the Kenyan economy hard.
In a meeting with President Uhuru Kenyatta at State House in March, CBK Governor Patrick Njoroge said the deal reached with banks would reduce the economic pressure that individuals and businesses would encounter due to the Covid-19 threat, which slowed down trade.
The KBA chairman, who is also the KCB chief executive Joshua Oigara, at the time said customers would be allowed flexible arrangements on their loans.