The banking industry was the key focus at President Uhuru Kenyatta’s address to the nation today as he announced new measures to deal with the impact of the coronavirus in Kenya (7 confirmed cases of Covid-19 and 11 patients undergoing tests). This is line with our expectations of policy changes to deal with Covid-19. In particular, the Central Bank of Kenya has also announced some new policy changes applicable to performing loans. Overall, the new polices are net positive for the economy and the banks that we cover.
We share our views on some of the new polices:
- Banks have been asked to extend the repayment period for personal loans, which account for c17% of total loans in the country, by up to 1 year. With personal loans repayment likely to suffer the most on account of consumer pressure over the next few months, we see this as a positive move since it will soften NPL formation for 2020.
- Banks have been asked to waive fees currently in place for checking bank balance on mobile phones. We do not see this as a significant negative as checking bank balance is not a key fee income driver for banks. This fee cut is in addition to the elimination of: (i) charges on bank to mobile wallet transfers, (ii) charges on transfers below KES1,000 and, (iii) increasing transaction limits on mobile wallets. We consider these actions positive for Safaricom, negative for banks in the short-term, but the potential impact is minimal in the long term, and overall positive for the country.
- SMEs and corporates have been asked to have discussions with their banks to allow for restructuring of loans. However, there were no specifics on the flexibility allowed on this measure. We believe banks will consider extending loan repayment terms and stalling repossession of collateral as SMEs and corporates tend to use business assets to secure funding. Banks will be tasked with meeting the costs related to the extension and restructuring of loans.
- Cash received by banks will be quarantined for 1 week in a bid to contain Covid-19. This is positive as the reduction of cash in the economy in the interim period will boost the use of alternative channels, especially mobile loans.
- Traders have been asked not to increase prices of basic goods. However, the government has not provided legal measures yet to ensure price increases do not occur.