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Distressed borrowers battle to save property as bad loans soar

Fred Aminga @faminga

A spike in bad loans and a tough economic environment is pushing many borrowers into the jaws of bankruptcy with some losing property held as security.

As the number of defaulters soars so have banks tightened recovery of bad and doubtful loans. And the upshot of this is the booming business for auctioneers.

Central Bank of Kenya (CBK) data indicates that by March this year, non-performing loans (NPLs) had hit Sh330.3 billion, which was a growth of Sh21.5 billion from Sh308.8 billion last December. As at December 2017, the stock of bad loans was Sh259.2 billion.

CBK governor Patrick Njoroge attributed the rise of bad loans to delayed payments by both public and private entities to their suppliers of goods and services, and slow uptake of new housing units.

“Banks have continued with mitigation measures, including enhanced recovery efforts,” said Njoroge during a post Monetary Policy Committee  last month.

Auction property

This means lenders can go all the way to auction property or security if a borrower is unable to pay their loan.

The Banking Industry Shared Value Report, 2019, released on Friday, estimates that as of May 2017, some 198,873 Kenyans had acquired loans from banks using household items as security. The report also indicates that 86,000 motor cars were used as security while 5,262 used immovable assets like land and property as collateral.

The statistics indicate that by the end of January this year, 183,487 loans worth Sh3.65 trillion were registered on the moveable assets registry.

Speaking to Business Hub, Dr Samuel Nyandemo, an economics lecturer at the University of Nairobi said the increase in bad debts is an indicator an economy is not performing as required.

“The economy is not meeting ambitions of investors. Looking at the auctions, many borrow against land and property to start a business, an indication that the business they had invested in did not do well,” he said.

He said Kenyans are copycats and they put their money where they perceive to be profitable, sometimes based on other people’s experiences and not research. “Most Kenyans are not in a position to identify the right place to invest and get returns. They need training,” he said.

“Competition is also very stiff knocking many people out of the race leading to bankruptcy,” he said. Analysts further say slow economic growth coupled with pending bills from national and county governments have played a major part in the current state of affairs.

Money spent

Kenya National Chamber of Commerce and Industry survey estimates that both national and county governments owe contractors and suppliers in excess of Sh310 billion.

On the flipside, the auctioneers are having a bliss and business is booming as borrowers who are unable to meet financial obligations let go of property held as security.

The increase in money spent to advertise auctions in local dailies barely tells half the story, but also serves to paint the true picture of the tough times individuals and investors are going through.

“We come in when someone can’t pay debts to recover the money for our clients,” says Robert Nagi, an auctioneer and debt collector at Space Auctioneers. Ken Nyaga of Garth Auctioneers says he believes the economy is not doing well going by the number of property he has auctioned in the recent past.

“I have witnessed an increase in auctioning of properties charged as security including land, developed property, cars and household items,” he said.

Ancestral land

Speaking on his plight, Paul Odiwuor,  32, told Business Hub how he lost his ancestral land and home after seeking a loan to service a Sh6.5 million tender to construct classrooms.

To fully service his obligations, Odiwuor went ahead and even got extra cash from a bank using another piece of land as security, and also topped up with funds from Youth Enterprise Fund courtesy of his tender documents.

“I am yet to be paid my cash by the county. Due to lack of money I have since lost my land, family and all earthly possessions to auctioneers,” recalls Paul who is also blacklisted by Credit Reference Bureaus amid rising interest from the bank loan.

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