This alert provides an overview of the response and mitigation measures initiated by the Kenyan government in the wake of Covid-19. Such assistance measures spearheaded by governments have become the norm rather than the exception, particularly in leading economies such as the United States, France, the United Kingdom, Italy, Sweden, and Spain. Our team can provide advice on governmental assistance and other measures that can sustain businesses during this difficult time.

 

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It is now apparent that the Covid-19 pandemic is also an economic menace. The government of Kenya, through some timely assistance from international development partners, has taken steps to assist businesses and individuals. Granted that the health risks posed by the pandemic will probably persist until a lasting solution is found, governments are now faced with the difficult choices of reopening their economies and keeping people safe. In this sense, the measures taken by the government will broaden and remain mercurial.

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In the wake of the first confirmation of Covid-19 in Kenya, the Central Bank of Kenya met with various stakeholders to encourage the use of digital platforms. This was supposed to encourage the use of mobile money transactions and lessen the risk of transmission through the exchange of banknotes. On 16 March 2020 the CBK announced a range of measures that would effectively remove any charges for bank-to-mobile transfers.

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A few days later, the CBK announced that as a result of further consultations with the banking sector, additional measures had been taken to mitigate the adverse economic effects that the pandemic would wreak on borrowers. These measures included the possibility of borrowers and lenders to seek opportunities to restructure their loans.

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To further avert the Covid-19 health crisis from becoming a severe economic and financial crisis, the Central Bank of Kenya’s Monetary Policy Committee (MPC) made several policy considerations. The first was the lowering of the Central Bank Rate (CBR) from 8.25 percent to 7.25 percent. This was intended to give commercial banks to lower their lending and deposit rates. Secondly, the MPC moved to reduce the Cash Reserve Ration (CRR) from 5.25 percent to 4.25 percent, and in effect, released Kshs. 35.2 billion to commercial banks to directly support borrowers who were likely to be distressed as a result of the pandemic.

The Central Bank sought to retain the proper functioning of the interbank market and liquidity management across sectors. The bank extended the maximum tenor of Repurchase Agreement (REPOs) from 28 to 91 days to enable banks to access longer-term liquidity secured on their holdings of the government securities without having to discount them.

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The Central Bank has also committed to providing flexibility to banks in respect of requirements for loan classification and provisions for loans that were performing on 2 March 2020, and whose repayment period was extended or were restructured due to the pandemic.

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The emergency measure taken by the Bank to mitigate the adverse economic effects on bank borrowers due to the pandemic includes the following:

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• Commercial banks are under instruction to provide relief to personal loan borrowers based on their individual circumstances emanating from the pandemic. The relief on personal loans by commercial banks includes a review of requests from borrowers for an extension of their loan for a period of up to one year.

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• Medium-sized enterprises (SMEs) and corporate borrowers are at liberty to contact their banks for an objective assessment and restructuring of their loans, depending on their circumstances owing to the pandemic.

 

• For the various restructuring and extension of loans, commercial banks are to meet all costs such as assessment.

 

• Additionally, to promote wider use of mobile transaction platforms, commercial banks have waived all charges for balance inquiry via such a platform.

 

• The restructuring has been prevalent in 10 sectors. The key sub-sectors that have seized this opportunity include tourism, real estate, building and construction, and trade with 31 percent, 17.2 percent, 17.0 percent, and 12.4 percent respectively.

 

In the month following the first confirmation of Covid-19, the banking sector has endured poor business conditions due to the general slowdown of the economy. It is similarly expected that commercial banks will receive more requests for extensions of personal loans and restructuring of other commercial loans as the effects of the pandemic continues to penetrate. By the month of April 2020, loans of at least Kshs. 176 billion had been restructured by the seven largest banks in Kenya.

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The Central Bank is also working with commercial banks to mitigate the impact of the pandemic on Micro, Small, and Medium Enterprises (MSMEs). This is a collaborative effort that involves the government of Kenya and Development Finance Institutions (DFIs). Through this framework, MSMEs can access concessionary and affordable funds, have at their disposal special credit guarantee schemes that can enable them to get commercial credit. Another intervention termed as Finance Plus, will also assist in the coaching and the regenerating of MSMEs for a faster recovery in the aftermath of the pandemic.

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However, the Central Bank postulates that current account deficits will remain stable at 5.8 percent of the GDP in 2020, mainly due to offsetting the effects of Covid-19 on the current account. Key sectors of the economy, such as horticulture had suffered depressed demand through the months of March and April. Fortuitously, orders for these products are trickling in, which is a demonstration of the faith in the government’s mitigation measures and the endeavor to keep cargo flights operational.