How fraudsters use fake car logbooks to access bank loans

A syndicate of fraudsters is using fake car registration documents to access loans from financial institutions, exposing the lenders to loss of funds and leaving the genuine car owners exposed to legal action by the banks.

Investigations by the Business Daily show that the banks — driven by stiff competition in the lending market — have partly helped the criminals’ cause by disbursing money before due diligence is done and authenticity of documents is confirmed.

Bankers have also complained that vehicle registration records at the National Transport and Safety Authority (NTSA) are not reliable even in cases where due diligence has been done, further exposing them to the fraud cartel.

The fake car registration syndicate was thrust to the public domain last month after the taxman impounded a number of vehicles and listed 124 others as owing close to Sh500 million in unpaid import duty.

Five of the impounded cars were registered to commercial banks. This means that the cars, most of whose owners insist they paid all the taxes and have loans with banks, were fraudulently used to secure loans.

Equity Bank, Family Bank, Sidian Bank and the collapsed Imperial Bank were in the Kenya Revenue Authority’s (KRA) list of tax defaulters, meaning they have in their books cars with questionable documentation.

Motor dealers Tripple One Motots and Japan Africa Marketing Company were also in the list.

READ: Forged car plate puts anti-counterfeit chief at odds in war on fakes

ALSO READ: KRA sends staff packing over missing car logbooks

Forgery on the rise

The NTSA, which registers motor vehicles, said forgery of registration documents was on the rise and had reached alarming levels.

NTSA director for registration and licensing Jacqueline Githinji said the authority had acquired a computerised system to help banks conduct quick online searches and weed out the fraudsters from the lending market.

“In many of the cases, we write to the banks but unfortunately sometimes the person coming for the letter is part of the ring so it never gets to the bank in time before the loan is advanced,” Ms Githinji said.

Habil Olaka, the Kenya Bankers Association (KBA) chief executive, did not respond to questions on the matter by the time of going to press.

Bankers, however, said the log books syndicate has forced the lenders to tighten use of cars as collaterals in securing loans, often to the disadvantage of genuine borrowers.

Under the new system, which the banks have been piloting, the lenders will verify the ownership of cars even before a joint registration request is made.

Banks account for up to 7,000 of the 9,000 transfer requests that the NTSA handles every month. The NTSA has also established a special desk that handles the logbooks and from where the banks collect the documents every Wednesday and Friday.

A mainstream banker, who spoke to us in confidence, said use of logbooks to secure loans has soared as Kenya continues to receive thousands of used vehicles from Asia and Europe every year.

“In many cases we wait for the generic slip showing the logbook has been received at NTSA and the money is released. It has worked in many occasions but we have also many times found out that the logbooks were fake or the number plates irregular,” the banker, who is an asset finance officer, said.

His bank, which claims to have the largest number of customers, recently suspended an employee in the loans department after a Sh13 million loan on a Range Rover fell into arrears only for the recovery units to find the registration details were that of a Toyota Probox.

The officials are now required to pause for a photo with the motor vehicle being financed or used as security during valuation and write a detailed description of the car before admitting it as security.

READ: Rotich moves to create single collateral register for banks

A call at one of the city lenders where one can borrow up to 50 per cent the car value and get the funds in 12 hours showed that indeed one does not have to wait to have the vehicle transferred.

Meridian Acceptances managing director James Ndwiga confirmed having handled cases where the lender is unable to auction a recovered car because of double or fake registration.

“We don’t understand what happens when the first search indicates that the vehicle is fine only to find out after default that the details belonged to some other vehicle.

“I have an incident now where we cannot auction a Q7 because its registration at NTSA says it is a lorry. Incidentally, I saw a Subaru Outback with the same registration, meaning there may be three cars bearing the same number,” said Mr Ndwiga.

The quick lender suffered a Sh22 million loss from a similar scam in 2011, the same year when the KRA raised alarm over the disappearance of 1,000 logbooks in two batches, one in June 2011 and the other in January 2012.

Two employees were later suspended in 2013 as logbooks believed to be in circulation remained at large.

One batch of logbooks has serial numbers ranging from S172501 to S173000 while the other batch has serial numbers of between S363501 and S364000.

Dud loans

In April, data from the Central Bank of Kenya (CBK) showed that banks’ bad loans stood at eight per cent of the total loans, up from 6.1 per cent in December and 4.6 per cent in June last year.

The last time bad loans were more than eight per cent of total loans issued by banks was in October 2005.

READ: CBK set to penalise banks that understate bad loans for profits

“The ratio of gross non-performing loans to gross loans rose to eight per cent in March 2016, partly due to delayed payments and enhanced reclassification of accounts to non-performing status at end 2015 statutory audits,” said CBK governor Patrick Njoroge.

With a total loan book of Sh2.2 trillion, this means the bad loans are at Sh176 billion, up from Sh139.4 billion in December — a Sh36.6 billion increase in the first three months of the year.