Kenyan banks hoard cash to cover loans

Bloomberg

Kenyan banks are expected to hoard cash as they report a jump in first-quarter loan-loss provisions to cope with the aftermath of the coronavirus pandemic.
Kenyan institutions got a cash boost when the central bank lowered reserve requirements to free up funds for lending, while interest rates have been cut to a nine-year low. Banks have now started restructuring debt for customers hard hit by a drop in business activity because of lockdown-measures aimed at slowing the spread of Covid-19.
KCB Group, Kenya’s biggest bank by assets, has reorganized 80 billion shillings of loans, primarily by offering a moratorium of about three months on interest and principal to borrowers affected by the pandemic. Standard Chartered Bank Kenya Ltd. has restructured more than 8 billion shillings of loans. Absa Bank Kenya Plc said on April 14 it had rejigged 8.3 billion shillings of debt.
The Nairobi-based unit of Standard Bank Group Ltd., Africa’s largest lender, kicked off the first-quarter earnings round, and KCB Group Ltd. will follow on May 19.

While Stanbic Bank Kenya’s loan book increased 12% to 161 billion shillings in the first quarter, the lender has restructured more than 10 billion shillings of loans because of the virus, according to an emailed statement. The “quarter has indeed put the economy in a difficult position with most sectors struggling to meet targets,” Stanbic Kenya’s Chief Executive Officer Charles Mudiwa said.
“We expect a significant increase in loan-loss provisions, skewing the cost of risk upwards,” African Alliance said in a note. Write-offs will also jump as “the pandemic accelerates structural shifts in the economy.”
Almost two-thirds of lenders operating in East Africa’s biggest economy expect the bad loans ratio to rise to 14% from 12.4%, according to a survey released this week by the Kenya Bankers Association, the industry lobby group.
Banks are adopting defensive strategies; implying that the appetite of growing risk-weighted assets has greatly waned,” according to Standard Investment Bank’s Kirimi. Lenders are stacking up on term-auction deposits, government securities and the interbank market “to try and buttress the top line.”