The Covid-19 pandemic has put a spotlight on the reaction of all economic actors as the economy navigates the unprecedented nature of its adverse effects. The two aspects of the reaction that buttress the assessment of its appropriateness are the speed of response and the sense of responsibility.
With banks being a critical cog in the economy’s wheel, their collective endeavour is to make sure that under the current challenging circumstances there is minimised disruption. Even at this early stage, it is evident that the banking industry has demonstrated leadership on the two ‘Rs’ of response and responsibility.
Banks have approached the Covid-19 pandemic from the basic fact that it is a health crisis first, but with huge business ramifications. The top priority has been the establishment of strong partnerships with various government and non-governmental agencies towards controlling the spread of the pandemic.
The interaction between bank staff and bank customers has been guided by the various government directives and advisories. All service delivery channels have been available to bank customers while banks are encouraging customers to utilise the mobile and other online channels as well as credit and debit cards. The fact that banks have remained open even in areas under lockdown is a strong commentary about the commitment to support households and businesses steer through the shock. While being open to business is necessary, it is the kind of relief banks are giving their customers that fits the bill for responsibility during a crisis.
The relief that the banking industry continues to provide its customers is underpinned by the fact that the Central Bank of Kenya (CBK) supported by Kenya Bankers Association (KBA) has played an instrumental role in supporting the economy mitigate the adverse effects of the Covid-19 pandemic.
The policy collaboration between CBK and KBA has entailed a close working relationship with banks; and we commend banks for the steadfast implementation of the measures which has resulted in the restructuring — at a cost the banks have absorbed — of an estimated Sh560 billion, equivalent to about 20 percent of the banking industry’s total loan portfolio.
Banks have sufficient motivation to provide this kind of relief. They recognise the reality that many working households — confronted with the possibility of losing their jobs and therefore their incomes — have no social safety buffers. Even then they still have loan obligations with banks, including mortgages. In the same vein many micro, small and medium enterprises (MSMEs) are very vulnerable and could close permanently if not supported.
The total effect of both the policy and market measures is that it has helped obviate the possibility of the credit market seizing up. It is worth noting that the uptake of private sector credit has been weak over the past three years.
Over the same period, the level of non-performing loans has remained elevated at double digit levels, implying elevated risks and risk perceptions. Even then, the rate of growth of credit to the private sector has been on an upward trajectory, rising from 7.3 percent in January 2020 to nine percent in April 2020.
The writer is CEO, Kenya Bankers Association.
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