Auctions cut loan defaults Sh9.2bn in April

Central Bank of Kenya Governor Patrick Njoroge. FILE PHOTO | DIANA NGILA | NMG

By CHARLES MWANIKI
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Summary

• Latest Central Bank of Kenya (CBK) data show that the non-performing loans dropped to Sh431.7 billion in April from a peak of Sh442.2 billion in February.
• The mounting defaults were a reflection of the struggles of workers and businesses in an economy recovering from a coronavirus-induced slump.

The size of defaulted loans dropped by Sh9.2 billion in March and April on increased property auctions and repayment of non-performing debt.

Latest Central Bank of Kenya (CBK) data show that the non-performing loans dropped to Sh431.7 billion in April from a peak of Sh442.2 billion in February — the first drop since Kenya reported the first Covid-19 case in March last year.

The mounting defaults were a reflection of the struggles of workers and businesses in an economy recovering from a coronavirus-induced slump, which triggered job cuts and business closures.

The ratio of defaulted credit to gross loans fell for the first time in one year to 14.2 percent last month from 14.55 percent in March —the highest ratio since July 2007.

Banks that had gone slow on property seizures last year following the pandemic have stepped up debt recovery efforts to clean up their loan books, leading to a spike in auctions.

Defaulted loans dropped by Sh7.6 billion in April and Sh1.6 billion in March while it increased by Sh12.5 billion in February, the CBK data show.

“Repayment and recoveries were noted in the transport, real estate, tourism, hotels and agriculture sectors,” said CBK governor Patrick Njoroge in a briefing yesterday.

“Seven out of 11 sectors registered declines in NPLs. Two sectors where we see an increase in NPLs are building and construction, and mining and quarrying, due to delayed payments to agents in those sectors.”

Default on mortgages and loans advanced to the transport sector crossed the Sh100 billion mark in the wake of layoffs, business closures and travel restrictions triggered by the Covid-19 pandemic.

The transport and real estate sectors topped loan defaults over the nine months to December last year as the country reeled from an economic crisis due to the pandemic.

Loans secured through title deeds and motor vehicle logbooks posted the fastest default growth rates over the period, coinciding with crippling travel restrictions and scaled down business operations to curb the spread of Covid-19.

Auctioneers say they held more auctions this year compared to the second half of last year, arguing that banks are moving much faster to seize properties from defaulters.

There has been a glut of repossessed homes, cars and office blocks on the market, which bankers are struggling to sell in Kenya’s soft economy.

The enhanced recovery efforts come in an environment where the number of loan accounts negatively listed with credit reference bureaus (CRBs) had jumped by 45 percent from 9.67 million in August last year to hit 14.03 million in January this year.

Top-tier banks—Absa Kenya, Stanbic Bank, Co-operative Bank, Diamond Trust Bank, Equity, I$M, KCB, NCBA and Standard Chartered Kenya— posted 43 percent rise in gross NPLs to Sh110.94 billion in the year ended December, highlighting the impact of rising defaults.

Borrowers holding restructured loans worth Sh569.3 billion risk auctions and blacklisting after the CBK withdrew the loans relief introduced last year.

The CBK said that March 2 marked the end of the period for the loan repayment reliefs extended to borrowers facing economic hardships related to the pandemic.

The regulator allowed banks to reschedule payments for customers days after the first Covid-19 case was reported in Kenya on March 13, 2020.

Borrowers with outstanding restructured loans will have until June 3 to regularise them in what will heighten property seizures.

Industries and other businesses have since cut down on their activities in response to the infectious disease, leading to job cuts and unpaid leave for retained staff as profitable firms move into losses.

This has seen workers who had tapped mortgages and unsecured loans for purchase of goods such as furniture and cars and expenses like school fees default. Unsecured loans are given on the strength of one’s salary.

Businesses that tapped loans based on their projected cash flows are also struggling to meet the loan obligations.

The CBK data shows that defaulted loans grew from Sh351 billion in March last year to Sh444.2 billion in February.