Soaring effects of Covid-19 as banks go after loan defaulters

Thousands of households and individuals are at pains as banks move to recover assets from loan defaulters, amidst the Covid-19 pandemic that has hard hit the economy.

This, as Kenyan banks’ credit profiles, continues to face significant risk from the economic impact of the pandemic, with the sector’s Non-performing Loans (NPL) ratio set to rise to a historic high past the 15 per cent projected for last year.

Most hit assets are cars with others being industrial and household equipment where owners are facing the auctioneers’ hummer.

Homeowners are also on the receiving end as banks close in on mortgage defaulters, as default rate soar in the wake of Covid.

It is expected to worsen than 2019, when default on mortgages jumped 41 per cent to Kes38 billion, occasioned by salary cuts and job losses witnessed last year.

In 2019, unpaid mortgages increased by Kes11.2 billion, a rise that outpaced other segments like manufacturing (19 per cent), traders (4 per cent) and personal loans (six per cent) in the growth of default on loans.

Buyers of cars through bank financing, who are yet to clear payments, are among the most affected this year, in a trend that started last year, with auction advertisements being a norm in the dailies.

Most are units registered between 2019 and last year when Covid ravaged the economy leading to the closure of businesses and loss of millions of jobs across different sectors.

Stanbic Bank and NCBA Group recently recovered 72 cars and 51 cars, respectively, which were sent for the hammer, as the lenders moved to recover the units from loan defaulters.

Taxi drivers operating on ride-hailing apps such as Uber, Bolt, and Little are among those most affected.

In 2018, Stanbic Bank entered a partnership with Uber and CMC Motors to offer drivers with Kes 835,000 low-cost vehicles at 14 per cent interest, payable over three years.

Most taxi drivers have however struggled since the onset of the pandemic, March last year, which saw the introduction of the night curfew that has reduced their operating hours, hence low returns from the business.

A huge number of saloon cars being auctioned are between 1000cc and 1300cc, preferred for taxi businesses and low income earners, due to their low consumption.

With almost 50 per cent of the banking sector loan book restructured, a proportion of these restructured loans are likely to become non-performing.

Last year, banks advanced loan restructuring options for individuals and entities to help cushion them from the impact of Covid-19.

Total loans amounting to Kes1.38 trillion had been restructured (46.5 per cent of the total banking sector loan book of Kes 2.97 trillion) by the end of October, in line with the emergency measures announced by CBK on March 18, to provide relief to borrowers.

Of this, personal and household loans amounting to Kes. 303.1 billion (36.1 per cent of the gross loans to this sector) had their repayment period extended.

For other sectors, a total of Kes.1.08 trillion had been restructured mainly to trade (18.7 per cent), manufacturing (22.7 per cent), real estate (14.5 per cent) and agriculture (12.8 per cent), Central Bank of Kenya data indicates.

The number of borrowers defaulting on loan repayment however reached a new decade high of 15 per cent.

This is the highest since 2007 when the default rate was 14.1 per cent.

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