Kenyan banks brace for loan defaults on unrest

By Helen Nyambura-Mwaura

NAIROBI (Reuters) - Kenyan banks believe expected loan defaults by businesses affected by rioting and looting mean they should adjust loan repayment reschedules, but the central bank must relax regulations to allow that, an industry official said on Monday.

John Wanyela, chief executive of the Kenya Bankers Association, said the industry foresaw that some business will default on their loans but it could not yet tell the extent.

"We have not quantified the level of default but we expect it will be there," Wanyela said in a telephone interview.

"We would like the central bank to be considerate and relax some stipulations so that when you look to restructure a facility, even though they say this is the way to go and you choose to go a different way, you will not be penalised for having given understanding to your customer."

Barclays Bank of Kenya has already announced plans to relax repayments schedules for some customers.

However, repayment requirements for new borrowers would be tightened from now on to reduce the chances of non-payment, Wanyela said.

"We may be forced to review the conditions of granting credit in order to minimise loan defaults. This will obviously impact the growth rate of the economy," he said.

Kenya's economy had been on an upward trajectory, climbing 6.1 percent in 2006 and projected to grow 6.9 percent in 2007, compared with 0.6 percent when Kibaki took over in 2002.