When the Central Bank of Kenya announced in March that lenders would offer a repayment holiday on personal and business loans distressed by the Covid-19 pandemic, there was excitement among many borrowers.
A big number were only coming to terms with sudden loss of income following tough economic shutdowns. To cushion borrowers, the banking sector regulator announced that all loans as of March 2, 2020 would be eligible for short repayment holidays or rescheduled payments of up to a year.
Among those beaming with relief at the time was 34-year-old Munyaka Njiru, who rushed to his bank to take advantage of the deal.
Mr Njiru, the proprietor of Bucketlist Adventures, a tour firm, said yesterday he saw the repayment holiday as a huge relief on his outstanding car loan. The hospitality sector was one of the hardest hit as the pandemic suspended international and local transport.
But Mr Njiru now says the relief has turned into a nightmare. He regrets that if he knew then what he knows now, he would not have signed on to the deal allowing him a break from repaying his Sh200,000 loan balance.
After six months, the bank recently wrote to Mr Njiru demanding interest of upto Sh24,000 that had piled up over the repayment holiday period. “The deal with my bank would have been a huge relief for me. But it has turned into a raw deal,” Mr Njiru told the Nation.
“The bank explained they had been loading up interest during the six-month period and this means I will end up paying upto Sh24,000 more,” he said, expressing his disappointment with the whole State-backed relief programme. The bank has asked him to pay Sh45,000 at once, failing which the loan will be considered to have fallen into arrears.
Under CBK’s initiative, individuals and companies could take a repayment holiday, lengthen the tenure of their loans, or opt to just pay the interest for a period of time. The relief also applied to credit card debt and mortgages.
“I would not have signed up if I knew I would eventually pay more,” said Mr Njiru, echoing the sentiments of many unsuspecting borrowers who aimed to take advantage of the relief programme.
Banks appear to have taken advantage of a broad guideline by the CBK, which allowed the lenders to restructure loans by either freezing interest payments, or fees, or offering a moratorium on interest or the principal repayments.
Borrowers who spoke to the Nation and others who have expressed their frustration on social media platforms say they were emboldened by the general wording of the regulators’ announcement, but they now accuse the lenders of having failed to disclose the full meaning of the supposed relief plan.
“Banks will meet all the costs related to the extension and restructuring of loans,” said CBK’s Bank supervision head, Gerald Nyaoma, in a circular to the lenders dated March 27.
Another borrower who is repaying a Housing Finance mortgage, however, says he spurned the restructuring offer after realising that he would end up paying more.
“I cancelled my application for relief after the customer care agent advised me that interest would continue accumulating on my loan even after signing the repayment holiday,” said the HF mortgage borrower, who requested anonymity.
The CBK had not responded to Nation’s queries by press time.
In a statement to the Nation, the Kenya Bankers Association said lenders had the leeway to restructure loans or offer repayment holidays to their customers on a case-by-case basis. “CBK provided the policy framework for banks to work with their clients with the prioritisation being the sectors hardest hit by Cocid-19; the cash reserve ratio reduction freed up liquidity for banks to work with clients on an individual basis to restructure facilities. KBA would not be in a position to give a unilateral directive on how banks restructure facilities,” said the bankers’ lobby organisation in response to the Nation.