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Shock for Kenyans seeking loan relief as banks issue tough conditions

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Loan Relief Kenya: One week after the first case of coronavirus was confirmed in Kenya, banks came together and offered what looked like a major relief for Kenyans struggling with loans. In a negotiated deal, the Central Bank of Kenya (CBK) said that Kenyans could now engage with their banks to extend their loan repayment for at least one year.

This was among the measures CBK was putting in place to cushion consumers as well as the economy from the effects of the Covid-19.

“Banks will seek to provide relief to borrowers based on individual circumstances arising from the pandemic,” said CBK Governor Patrick Njoroge. “There could be instances where people will lose jobs and may not have the cash flow to support loan repayments. All personal loans that were current on March 2 will be eligible for this consideration.”

Over 1 million Kenyans to be delisted from CRB

Since then, thousands of Kenyans have been trooping to their bank to negotiate for a loan relief. But it is now emerging that banks may be playing a game of hide and seek. According to a report that appeared in the Business Daily, borrowers have been hit with shock after learning that banks have instituted new stringent rules on who qualifies and who doesn’t. The new rules have shut the door for the majority of borrowers seeking loan relief.

“Some banks have for instance asked borrowers seeking to defer repayment of their loans to provide letters from employers showing proof of salary cuts or job termination as a condition to be considered for the relief,” the report says. It quotes one bank telling its customers as follows:  “You may visit any nearest branch to request for a loan relief through our loan officers. You will require a letter from your employer indicating a salary cut or job termination.”

This revelation comes in the wake of reduced lending in both mobile and normal loans, out of fear that Kenyans will default. While it was expected that private firms such as Tala and Branch that operate mobile lending apps would be hit hard, borrowers have been caught by surprise after some banks that run lending apps froze their mobile loans.

Last week, the CBK ordered that over one million Kenyans be delisted from the credit reference bureaus. The order demanded that Kenyans with loan defaults of less than Sh. 1,000 be removed from the CRB. The move came a few weeks after it was revealed that the number of Kenyans listed on credit reference bureaus has hit 3.2 million.

The Kenya Bankers Association (KBA) has come out to defend banks over their stringent conditions, saying that they are in line with the CBK guidelines.

“This requires the bank to demonstrate that the affected account was performing as at 2nd March and only defaulted thereafter (hence likely attributable to Covid-19),” the Business Daily quoted KBA chief executive Habil Olaka. “To satisfy this requirement, banks will request for this information, which will be unique depending on the type of borrowing. For example, check-off loans (off payroll) will default when one’s employment income is affected either through termination, salary cuts or other downward adjustments as a consequence of the Covid pandemic. Evidence of such will therefore be obtained by the bank as a CBK requirement.” Loan Relief Kenya.

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