Restructured MSME loans dip on economic recovery

Financing SME

 The value of loans restructured by micro, small and medium-sized enterprises (MSMEs) dipped by 11.6 percent last year.

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The value of loans restructured by micro, small and medium-sized enterprises (MSMEs) dipped by 11.6 percent last year as more firms regained their footing on improved economic performance.

A credit survey report by the Central Bank of Kenya (CBK) shows that a total of 6,572 MSME loan facilities in the banking industry valued at Sh122.5 billion were restructured in 2022, constituting 0.05 percent of total loan accounts and 3.37 percent of the total value of the gross loan portfolio as of December 2022.

This is Sh16.2 billion less than the Sh138.7 billion worth of 17,381 MSME loans that were restructured by banks in 2020 when Covid-19 broke out hitting millions of businesses.

In value terms, the real estate sector accounted for 47.3 percent of restructured loans in 2022, followed by trade at 22.1 percent while transport and communication covered 10 percent as the rest had less than 10 percent.

The CBK in March 2020 put in place emergency measures that included allowing lenders and borrowers to negotiate moratoriums on loan repayments to mitigate the adverse economic effects of Covid-19. They expired on March 31, 2021.

Under the plan, Sh1.7 trillion loans were restructured, accounting for 57 percent of the gross loan book.

The CBK says that restructuring of MSME loans eased last year as the business operating environment improved, boosting ability to repay.

“The restructuring was largely aimed at enabling borrowers to better manage their credit performance. The reduced number and value of restructured loans in 2022 indicate a steady business recovery by MSMEs,” said the survey.

Kenya’s economy shrank by 0.3 percent in 2020, the first negative economic growth in 12 years, owing to the massive disruption of the key sectors by the pandemic.

Accommodation and food service, education, tourism, and professional and administrative service activities were the most hit that year.

While the economy bounced back to record a 7.5 percent growth in 2021, growth slowed down to just 4.8 percent in 2022, according to the Economic Survey 2023 released by the Kenya National Bureau of Statistics last month.

Despite the economy performing better in 2022 compared to 2020, the level of MSME non-performing loans remains high.

The survey shows that while there are some 1.18 million MSMEs loan accounts at banks by December last year, 216,951 accounts valued at Sh90.4 billion were classified as non-performing. This translates to 18.3 percent of MSME loan accounts and 11.5 percent of the total outstanding such loans.