Let CBK extend defaulter listing moratorium

CBG Governor Patrick Njoroge displays the new notes in 2019. Under CBK’s initiative, individuals and companies could take a repayment holiday, lengthen the tenure of their loans.

Photo credit: File | Nation

What you need to know:

  • As the custodian of the financial sector’s stability, the Central Bank is, rightfully, concerned by the heightened credit risk and impact of increases in non-performing loans.
  • As regulator with macroeconomic expertise, CBK is also informed of the duress that the economy and the public are under.

When, in April, Central Bank of Kenya suspended blacklisting of loan defaulters by credit reference bureaus (CRB) for six months, it was intended to shield performing borrowers from the adverse impacts of the Covid-19 pandemic.

However, nobody could have anticipated then the depth and prolonged duration of the economic carnage that was to follow in the next six months.

An estimated 1.7 million Kenyans lost their jobs during the lockdown, payrolls were cut drastically, businesses and industries collapsed and evictions became common.

Yet to emerge are the consequences of the resurgent local infections and deadly second wave of the coronavirus on exports.

It is, clearly, not business as usual in the Kenyan economy. Nor will it be for a while. Leading, lagging and coincident indicators suggest that difficult economic times are, indeed, not yet over.

As the custodian of the financial sector’s stability, the Central Bank is, rightfully, concerned by the heightened credit risk and impact of increases in non-performing loans. As regulator with macroeconomic expertise, CBK is also informed of the duress that the economy and the public are under.

The resumption of CRB blacklisting is not at issue; rather, it is the timing, coupled with the harsh economic reality on the ground.

Kenyans typically borrow heavily in January, with school fees being a significant financial obligation.

Resumption of blacklisting on January 1, 2021 would certainly limit, or even cut off, the much needed access to funds during this financially strenuous month — and worse, during these challenging coronavirus times.

For the affected borrowers who are legitimately dealing with job losses, furloughs and paycuts, a resumption of blacklisting at this time would be punitive. It is a move that can also force difficult choices of not putting food on the table, foregoing medical attention or abandoning school fees.

Economic improvements

CBK should, consequently, give consideration to a regularisation extension period of at least 60 days. This would provide borrowers with invaluable extra time to organise or salvage their financial situations as well as benefit from any economic improvements that the new year might bring.

Financial institutions could support such extension by offering positive repayment incentives to borrowers.

From tried and tested ‘too-good-to-be-true’ discretionary offerings from financial institutions, the borrowing public is highly cynical.

And while it is respectfully acknowledged that CBK does not engage in public discourse on many matters, unprecedented times call for extraordinary measures. 

The timing of the looming lapse of the moratorium on blacklisting is likely to be detrimental to many, yet an extension would benefit the very borrowers Central Bank originally intended to cushion. 

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