Banks extend loan repayment period for customers
To prevent a mass default due to rising interest rates, banks are extending loan maturity periods for customers who are being squeezed by higher State deductions, such as the housing levy and pension.
Many borrowers now face greater monthly deductions as a result of the hike in statutory deductions and increased interest rates in response to the rising Central Bank Rate (CBR), which is presently at 10.5 percent, the highest level in over seven years.
Samuel Tiriongo, head of research and policy for the Kenya Bankers Association, stated on Wednesday that lenders are helping these distressed borrowers by extending the payback period to reduce monthly payments for loan servicing.
Dr. Tiriongo stated this during the release of the banking industry report for 2022. “Banks have been careful not to increase interest rates immediately following the CBR rise but to alter loan tenors so that the repayment schedule remains the same.
“With increased payments in terms of repayment ticket sizes, that is actually an additional strain on the user. however, that helps clients with a longer period for loan tenors.
The action is reminiscent of what was seen during the worst of the Covid-19 era disturbances, when banks gave their clients loan servicing extensions and breaks to help struggling businesses and individuals.
Due to the lengthened loan terms, borrowers who were currently paying off bank loans before the most recent rate increases will continue to make nearly the same monthly payments but will take longer to pay off the debt.
Banks extend loan repayment period for customers
Even while it comes with a greater cumulative interest payments amount, this also gives banks a new line of defense against the risk of default that benefits borrowers.
Salaried workers who had borrowed money based on their paystubs will have to accept a three percent penalty from their gross pay this month to pay the 1.5 percent housing levy that has been retroactively applied to July.
The National Social Security Fund (NSSF) is another issue that employees like teachers and police officers must deal with. Using this deduction, going up to Sh1,080, was introduced last month.
Banks extend loan repayment period for customers
