Real estate auctions return as defaults hit their highest level in 13 years

Central Bank of Kenya. PHOTO FILE | NMG



  • The latest data from the Central Bank of Kenya (CBK) shows that 14.5% of all loans or 432.45 billion shillings were in default at the end of February.
  • The growing defaults are a reflection of the struggles of workers and businesses in an economy recovering from a coronavirus-induced crisis.

The share of defaults rose to a 13-year high following the economic fallout from Covid-19, setting up thousands of borrowers for foreclosures and blacklists with credit reference bureaus ( CRB).

The latest data from the Central Bank of Kenya (CBK) shows that 14.5% of all loans or 432.45 billion shillings were in default at the end of February, compared to 349.94 billion shillings a year ago. year, the largest 12-month increase in recent history.

Growing defaults reflect the struggles of workers and businesses in an economy recovering from a coronavirus-induced crisis, which has sparked job cuts and business closures.

The share of overdue loans rose from 12.7% last February to 14.5%, the highest ratio since July 2007.

Banks that slowed foreclosures last year in the wake of the pandemic have stepped up debt collection efforts to clean up their loan portfolios, leading to higher auctions.

Thousands of defaulters have been on the books of Kenya’s three CRBs – Metropol, TransUnion and Creditinfo International – since January after the CBK lifted the suspension of listing of loans in default after April 1.

The CBK says the delinquent loans are mainly in the real estate, agriculture and manufacturing sectors, in addition to those listed as personal and domestic.

“The increase in NPLs is attributable to the gloomy business environment, and banks continue to arrange for NPLs,” CBK Governor Patrick Njoroge said.

Industries and other businesses have since scaled back operations in response to the infectious disease, resulting in job cuts and unpaid leave for retained staff as profitable businesses suffer losses.

This saw workers who had used mortgages and unsecured loans for the purchase of goods such as furniture and cars and expenses such as school fees in default. Unsecured loans are given based on salary.

Businesses that have used loans based on their projected cash flow are also struggling to meet their loan obligations.

Commercial banks have alerted the Central Bank to the intensification of real estate auctions this quarter.

“For the quarter ending March 31, 2021, banks plan to step up their credit recovery efforts across all economic sectors. The intensified stimulus efforts are aimed at improving the overall quality of the asset portfolio, ”the banks said during the CBK credit investigation in December.

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

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

The strengthened recovery efforts come amid an environment where the number of negatively rated loan accounts with CRBs jumped 45%, from 9.67 million in August last year to 14.03 million in January this year. .

A majority of banks said much of their turnaround efforts would focus on the retail (89%), personal and household (87%), real estate, transport and communications, and construction portfolios and construction (84%).

Leading banks – Absa Kenya, Stanbic Bank, Co-operative Bank, Diamond Trust Bank, Equity, I $ M, KCB, NCBA and Standard Chartered Kenya – recorded a 43% increase in gross NPLs to 110.94 billion of shillings during the year. end of December, highlighting the impact of the rise in defaults.

Kenya last Friday announced a new partial lockdown to curb Covid-19 infections, including restricted travel to Nairobi and four other counties, a stricter curfew, the closure of bars and suspension of education in anybody.

The restrictions have raised fears of a new round of layoffs and layoffs, which could trigger further defaults and a cash crunch in an economy recovering from the effects of Covid-19.

Borrowers with risky shillings worth 569.3 billion restructured loans auctioned and blacklisted after the CBK withdrew the loan relief introduced last year.

The CBK said March 2 marks the end of the period of loan repayment relief given to borrowers facing economic hardship from the pandemic.

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

Borrowers who still have restructured loans outstanding will have until June 3 to regularize them in what will accentuate foreclosures.

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