(Bloomberg) — The Central Bank of Kenya is moving to ensure lenders in the East African nation preserve capital they’ll need to help the economy recover from the coronavirus pandemic.
The institution wants lenders to discuss their capital adequacy with it before making decisions on dividend payments for this year. The directive is in a memo the central bank sent to lenders and was shared by someone with knowledge of the matter, who requested not to be identified because he isn’t authorized to make the document public.
Sub-Saharan Africa’s third-largest economy will probably contract by 0.3% this year as the pandemic and measures to curb its spread take their toll, according to the International Monetary Fund. That would be the first time the Kenyan gross domestic product shrinks in 27 years.
Lenders have taken a hit. Equity Group Holdings Plc, the nation’s biggest by market value, increased provisions for loan losses eightfold , causing profit for the six months through June to fall 24%. KCB Group Plc, which restructured more than 110 billion shillings ($1 billion) of loans by mid-May, saw its first-half profit plunge 40%.
The top banks are, however, well capitalized while some smaller lenders may need a capital boost, according to Faith Mwangi, a Nairobi-based investment analyst at Tellimer Inc. Banks are unlikely to pay any dividends this year unless performance changes in the second half, Mwangi said.
The duration and extent of the pandemic remains uncertain and it’s critical that the banks remain strong, according to the memo. Resilient banks will be in a good position to support the post-pandemic economic recovery, it said.
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