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The post-COVID economic recovery of the country will greatly rely on interventions by the financial sector in helping businesses badly affected by the COVID-19 pandemic. The Central Bank of Kenya (CBK) is already warning of an expected decline in GDP for the second quarter of the year as the impacts of coronavirus containment measures on businesses begin to bite.
GDP decline
The measures which include restrictions on inter-county movements, night curfews and closure of businesses in hospitality sectors have resulted in reduced revenues in the transportation and storage, trade, and accommodation and restaurant sectors.
In a press statement released by CBK Governor Patrick Njoroge following Wednesday’s meeting of the Monetary Policy Committee, indicates that the banking sector continues to exhibit resilience amidst uncertainties caused by the pandemic.
The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios.
CBK Governor Patrick Njoroge
Intervention by banks
Analysts are saying that additional loan loss provisions will be required from the financial sector players as these impacts deepen.
With additional stresses expected to arise beginning second quarter onward, we believe additional loan loss provisions may still be required, especially as economic concerns around Covid-19 become more entrenched
Nairobi-based Kestrel Capital (East Africa) Ltd.
To be able to support the economy back to a growth trajectory, banks will need to increase their loan provisions in supporting businesses that will aid in the recovery process.
Just this morning, Equity Group Holding announced a ten-fold increase in its loan provisions from Sh 300 million in the first quarter of 2019 to Sh. 3 billion this year. To help the bank maintain liquidity during these uncertain times, shareholders will now not receive the earlier announced Sh 9.5 billion dividend payout. Additionally, Equity Bank announced the restructuring of Sh. 92 billion worth of loans to help customers deal with the impact of COVID-19 on their businesses. The bank has also donated Sh. 1.1 billion to go towards the purchase of personal protective equipment for healthcare workers.
Absa Bank which announced Sh 2.3 billion aftertax profit for the first quarter of 2020 has also put in place a raft of measures to cushion customers from the adverse economic impact of the pandemic. These measures include; loan repayment holidays, loan restructures as well as training and mentorship programs for its SME customers. The bank has also waived transaction fees on digital channels so as to encourage more people to go cashless.
In support of the government’s effort in the fight against this pandemic, Absa contributed Sh 50 million through the COVID-19 Emergency Response Fund.
The Monetary Policy Committee however expecting inflation to remain stable in the short run.
This is supported by the improving food supply due to favorable weather conditions, lower international oil prices, the impact of the reduction of VAT, and muted demand pressures.
CBK Governor, Patrick Njoroge
