In December 2019, reports emerged about a new disease that was at the time spreading in the Wuhan Province in China. By February 2020, the Coronavirus disease (COVID-19) had spread into other countries in the world. On 12th March 2020, the Ministry of Health confirmed the first case of the disease in the country. The situation prompted the Government to introduce a wide range of containment measures, which included lockdowns, travel restrictions, among a wide range of other interventions.

The COVID-19 pandemic sailed the banking industry – and all other sectors of the economy – into a rather unfamiliar business environment in the year 2020. Reeling from the repeal of interest capping in November 2019, the year 2020 set off on a great sense of optimism and anticipation, with the overall economy scaling up to over 5 per cent in the initial months of the year. For the banking sector, the repeal of interest rate controls had promised a fresh impetus at the start of 2020, particularly facilitating more lending to sectors of the economy previously crowded out of active lending.

Before March 2020, when the pandemic was reported in Kenya, the banking industry was collectively applying itself to implementing innovative business strategies to better support business recovery, especially among small and medium-sized Enterprises. Setting in on the cusp of the second quarter of the year, COVID-19 shifted the industry’s focus towards addressing the new challenge: sustaining livelihoods and ensuring business continuity.

As the pandemic progressed, the scope of enterprises in need of support stretched to include previously robust sectors, such as tourism and hospitality, manufacturing, education, among others. To prevent the health crisis from degenerating into a financial crisis, the banking industry quickly encouraged the banking public to utilize digital banking platforms. On the other hand, the Government constituted the National COVID-19 Emergency Response Fund to mitigate the healthcare crisis. At the close of 2020, the banking industry had raised about Ksh 1.7 billion for the COVID-19 Emergency Response Fund, an intervention without which many hospitals and health workers would have been in dire need.

In the course of 2020, the Government played an instructive role through fiscal interventions, including adjustments to the tax policies, which served to cushion Kenyans from the vagaries of the pandemic. Meanwhile, the Central Bank of Kenya was proactive in engaging the Governing Council to see how best the sector can intervene. As a result, a raft of industry-level initiatives was instituted to sustain operations and support disrupted businesses and households. Perhaps the most discerning intervention to cushion the economy and free up liquidity on the onset of the pandemic was the reduction of the Cash Reserve Ratio (CRR) to 4.25 per cent from 5.25 per cent. As a result, bank employees were not only on the frontline, dutifully serving the public despite the health risk they and their families faced; but also, were instrumental in working hand in hand with heads of households and business owners to renegotiate loan contracts and make life a little easier in the face of the worst health crisis in recent history.

The COVID-19 pandemic demonstrated the important role played by the banking industry in acting as a hinge that connects policy and regulation with the intended beneficiaries of a sound and stable financial sector. In the course of 2019, banks restructured customer loans at record levels. Loans worth Ksh 1.63 trillion or 54.2 per cent of the total Ksh 3 trillion loan portfolios were restructured. This is despite the fact that banks were facing a deteriorating book; ultimately, gross non-performing loans to gross loans significantly increased to 14.1 per cent by December 2020 compared to 12 per cent in December 2019.

Moreover, banks worked with the regulator to zero-rate several bank charges, including digital payments and PesaLink, to encourage customers to shift to digital banking to reduce physical contact within branches and help businesses struggle to stay afloat. Notably, the industry did not experience too much of an effect of foregone income due to the COVID-19 interventions. From a general perspective, banking profitability for the year 2020 reduced compared to the prior year. The Central Bank of Kenya credit survey for the year showed that the pre-tax profit of 39 banks that were sampled reduced by 30 per cent in 2020, representing an aggregate Ksh. 112.8 billion reduction compared to 2019.

Post COVID-19, the banking industry continued to adapt to the economic dynamics imposed by the disruption. Some of the interventions that continue to be sustained include supporting affected customers and creating innovative solutions, including blended finance and the use of the moveable assets registry, to address credit access to vulnerable sectors. Stakeholders in the sector also continue to work closely operationalize risk-based pricing as an important cog in promoting credit access.