Banks open to loan restructuring as higher rates, inflation raise defaults

East Africa’s retail banks have announced measures to cushion borrowers from the prevailing hard economic conditions, precipitated by rising interest rates and inflation.

Listed lenders have reverted to the Covid-19 debt relief measures, including debt restructuring and loan repayment moratoria, to bail out struggling businesses and households.

The latest move is part of efforts to avert potential defaults and strengthen customer loyalty in a competitive banking sector.

Several lenders sampled by The EastAfrican revealed plans to cushion their customers whose disposable incomes have been battered by the high cost of living and high interest rates.

These are KCB Group, Co-operative Bank of Kenya, I&M Group and Absa Bank Kenya.

Co-op Bank says it is restructuring customer loans, to align their monthly repayment amounts with their currently reduced income levels, while at the same time extending repayment periods to provide for the reduced monthly payments.

“We are supporting our customers by way of restructures to align monthly repayment amount with their current (lower) income levels, an extension of repayment period to accommodate for reduced monthly payments,” the lender says in a statement.

“We are also offering crucial non-financial services, notably customer training on debt management, to assist them to proactively build skills in prudent financial management to avoid debt distress.”

Growth

Co-op Bank’s loans and advances to customers in the nine months to September 2023 stood at Ksh378.07 billion ($2.6 billion) from Ksh335.16 billion ($2.3 billion) in the same period the previous year (2022), representing a 12.8 percent growth.

The lender, which is 64.56 percent owned by the Co-operative movement, has operations in South Sudan.

KCB Group CEO Paul Russo says the challenging economic environment has forced the bank to look at ways of helping customers navigate the economic turbulence.

“We believe that we have a role to play in cushioning businesses and individual customers to ensure a greater multiplier effect within the economy,” he said.

“On a need basis, we are having conversations with customers to see how best we can accommodate them in light of their respective circumstances, especially as relates to existing facilities.”

KCB has operations in Tanzania, South Sudan, Rwanda, Uganda, Burundi and the DRC.

Its loan book grew to Ksh1.04 trillion ($7.15 billion) in the nine months to September 30, 2023, from Ksh758.81 billion ($5.22 billion) in the same period in 2022, largely as a result of the acquisition of the Congolese bank Trust Merchant Bank SA (TMB) in 2022.

I&M Group says it has sustained its waiver of the transaction fees on money transfers between mobile wallets and bank accounts throughout this year and opened another window for the restructuring of customer loans, including extending the moratorium on loan repayment, where necessary, to cushion customers on a case-by-case basis.

“From a customer-centricity perspective, it is to know what our customers are dealing with and how can we support them through these tough times. Of course, if customers see that the increase in interest rates is going to impact their businesses adversely, then one of the options they have is to engage the bank and say, look I want to restructure my facility to fit my cash flows, can we talk about how that can be done,” said the group’s regional Chief Executive Kihara Maina.

I&M Group, which has regional operations in Uganda, Rwanda, and Tanzania and a joint venture in Mauritius, is keen on building inroads into retail banking by offering innovative solutions that support the growth of its customer base.

“Last year, every bank was restoring charges on transfers to mobile wallets. We decided not to and it is saving customers significant money in terms of the cost they pay on transfer fees from bank to wallet and from wallet to bank. This will continue this year and it has been well received by the customers,” said Mr Maina.

Absa Bank Kenya says it intends to take a personalised approach to managing the financial challenges of its customers.

“We recognise that each customer's situation is unique, and as a brand, we believe in taking a personalised approach to managing their financial challenges,” said Chiera Waithaka, the bank’s chief risk officer.

“We are encouraging our customers to reach out to us through their relationship managers or by walking to our branches to discuss ways in which they can meet their financial obligations.”

Banks across the region are staring at the aftermath of rate increases with fears of massive defaults and reduced credit to the private sector looming large.

East African central banks have either increased their policy rates or left them unchanged to rein in rising inflation and weakening local currencies against the dollar.