The Central Bank of Kenya (CBK) projects Kenya’s economy to begin making a strong post-pandemic recovery during the second quarter of this year, running between May and August 2020.
“The full brunt of lockdowns, night curfews and restricted movements of persons, which were introduced in March, were felt most severely in April. But there are all indications that the economy is beginning to bounce back strongly,” said Dr Patrick Njoroge, CBK Governor.
He made these remarks during a post- Monetary Policy Committee(MPC) media briefing held on 26th June, 2020.
Dr Njoroge attributes this optimism to a strong performance in the tea and horticultural sector as well as improved diaspora remittances. He also said Kenya’s highly diversified economy in terms of trading partners was sufficient to enable the country to override negative effects of the global COVID-19 pandemic.
Tea and Horticultural
Figures indicate that Kenya relies on the East Africa Community (EAC) for 20% of its external trade and 40% with Sub-Sahara Africa, indicating more dependence on regional trade.
“While growth was weak in Q1, production of tea and export of tea and horticulture, Kenya’s key foreign exchange earners, has been strong between May and June,” said Dr Njoroge.
CBK figures show there has been a rise in tea exports at 15.2% in May compared to a similar period last year. Export of horticulture products has risen 42.3 million metric tonnes in May this year compared to a similar period in 2019.
He noted that demand for flowers has been up 12.4% due to a rise in demand from key export markets as well as the availability of adequate cargo space for exporters. Further, the market increase in flower export volumes has been noted, especially in the 2nd week of June due to an increase in global demand, now at between 80%-90% of normal levels.
“We have seen an increase in global demand for flowers, lifting of many supply restrictions and increased availability of flight cargo space. We expect a stronger performance for the flower industry in 2020,” said Dr Njoroge.
He attributes the significant decline in diaspora remittances in April to the lockdown in South Africa, one of the key sources of remittances to Kenya.
CBK figures show that while there was a decline in diaspora remittances to US$ 208 Million in April, 2020, this has since increased to US$ 258 Million in May, 2020. During this period, contribution to total diaspora remittances to Kenya from South Africa rebounded from US$ 5.7 Million in April to US$ 15.2 Million. There has also been a noted increase in remittance inflows from the USA.
Free Mobile Money Transfers
According to the governor, the bank is determined to maintain the measures it took on 16th March, 2020 to encourage the use of mobile money as a means of combating the transmission of the virus through the handling of cash.
CBK notes that since it took measures to encourage use of mobile money, transaction volumes and value executed outside the physical bank branch has increased from 88% and 50% in January-March 2020 to 94% and 61% during the April May, 2020 period.
Loan Restructuring & Branch Closures
The CBK has also been encouraging commercial banks to renegotiate with individual borrowers and firms, as a way of safeguarding the health of their balance sheets.
He said commercial banks have been implementing the COVID-19 pandemic protocols.
“We have had to close down certain branches in cases where front office staff have had contact with patients with COVID-19. We have ensured that the closed premises are cleaned up and that all re-opening protocols are adhered to,” said Dr Njoroge.
In total, loans worth KSh 679.6 Billion disbursed by commercial banks, out of the banking industry’s loan book valued at KSh 2.9 trillion, has been restructured. This is 23.4% or a quarter of the banking industry’s total loan book.
CBK figures indicate that commercial banks have restructured personal loans estimated KSh 199 Billion or 25% of a personal loans portfolio worth KSh 795.2 Billion.
Dr Njoroge also disclosed that following a reduction in the Cash Reserve Ratio(CSR) to 4.25% from 5.25%, some KSh 35.2 Billion as additional liquidity has been availed to banks to directly support borrowers that are distressed as a result of COVID-19.
“The restructuring of these loans has involved a cross-section of sectors and individuals. We encourage borrowers who are still in distress to approach the banks and work out an agreeable repayment plan,” said Dr Njoroge.