In response to the mounting financial pressure caused by increased state deductions such as the housing levy and pension, as well as rising interest rates, banks are proactively extending loan maturity periods for their customers.

This move aims to prevent the looming risk of mass default that could be triggered by these challenging economic circumstances.

The recent surge in statutory deductions and the uptick in interest rates, which are aligned with the higher Central Bank Rate (CBR) now standing at 10.5 per cent, the highest in nearly seven years, have collectively impacted borrowers.

The consequence has been higher monthly deductions for borrowers, which in turn, places a significant number of individuals at the precipice of loan defaults.

In light of this growing concern, Samuel Tiriongo, the Director of Research and Policy at the Kenya Bankers Association, revealed that lenders are actively supporting distressed customers by opting to increase the repayment period for loans.

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By extending loan tenures, the monthly loan repayment amount is lowered, alleviating the immediate financial strain on borrowers.

Tiriongo underscored this strategy, stating, “Banks have been keen not to increase interest rates immediately following the CBR rise but to adjust loan tenors so that the repayment schedule remains the same.” He made this observation during the recent release of the banking sector report for the year 2022.

“With elevated repayment in terms of ticket sizes of repayment, that is actually an extra burden on the customer. But with an elongated period in terms of loan tenors, that supports customers.”

This practice echoes the measures taken during the peak of disruptions caused by the Covid-19 pandemic.

At that time, banks offered customers respite by granting loan servicing breaks and adapting repayment periods to accommodate individuals and businesses facing financial hardships.

By extending loan tenures, borrowers who were already servicing bank loans prior to the recent rate hikes will experience little change in their monthly instalment amounts.

However, they will have a longer period to settle their debt.

While this approach helps borrowers manage their immediate financial strain, it also results in a higher cumulative interest repayment amount over the extended period.