Kenya’s financial services providers and consumer credit market will have to drive a robust, proactive response to the COVID-19 crisis if they are to manage the risks to the industry, with the pandemic expected to have a major impact on the country’s economy and the consumer landscape, warns TransUnion, a global information and insights company
Past crises and initial data suggest there will be ‘a significant reduction’ in the quality and volume of credit in Kenya as consumers and businesses grapple with lower income.
“What will define the COVID-19 pandemic for the consumer credit market is how banks and lenders respond to the challenges it presents,” says Billy Owino, CEO of TransUnion Kenya.
To help the consumer credit market respond to the crisis, TransUnion has launched its COVID-19 playbook via webinar to a wide audience of Kenyan business and credit industry players. The playbook is an insights-driven methodology designed to help the credit market navigate a consumer marketplace that will be heavily impacted by the pandemic, and includes several market scenarios for the industry to consider.
“During times of crisis, when events are sudden and consumer incomes are impacted, demand for credit increases while supply decreases. Credit will be an important form of liquidity for struggling consumers, and having the right treatment strategies in place to predict and manage potential outcomes is what will set successful organisations apart. We know lenders want to help the consumers they serve, but they need to do it based on well-informed and robust solutions and analysis,” says Owino.
The playbook combines key macroeconomic indicators, historical trends and insights garnered from other crises around the globe such as Hurricane Katrina and Hong Kong’s handling of the SARS and COVID-19, to generate multiple data-driven market scenarios and projections of new business activity, and provide treatment strategies for each scenario to mitigate risk.
Prior to the COVID-19 crisis, Kenya’s economy was projected to grow by 5% in 2020, based on projections by the World Bank. However, this has since been reviewed downward to between 1.8% and 2% GDP growth. On the consumer credit front, TransUnion research shows that unsecured products recorded high balance growth in 2019. During the period, personal loans also showed a 77.7% rise in the serious delinquency rate over the previous year. This trend will only be exacerbated by the COVID-19 crisis, and lenders will have to shift their strategies to cope, says Owino.
“Our data-driven analysis indicates three possible scenarios that will influence the financial services industry: best, medium and worst case. To mitigate this, businesses should be thinking of their response to the COVID-19 pandemic in three phases: getting organised and mitigating the downside; prioritising post-COVID robustness; and getting out of the blocks first and having a fast recovery,” he says.
