KCB Group chief executive officer Paul Russo during the lender's announcement of half year 2022 financial results in Nairobi on August 24, 2022. PHOTO | DIANA NGILA | NMG
KCB Group has signalled a slowdown on seizures and auction of the property of defaulters in a new approach aimed at tackling elevated levels of non-performing loans which remain above the industry average.
The group’s chief executive Paul Russo says the tier one lender will increasingly work with struggling companies in restructuring debts in line with their cash flows and raising fresh funds to help them turn around.
The corporates-heavy lender has been battling growing levels of defaults in the past year on the back of persistent disruptions in global supply chains, soaring inflation and mounting unpaid bills by the government which has hit large businesses hard.
The bank has flagged firms in road construction, hospitality and manufacturing sectors as the biggest defaulters.
“When I look at some of those names [defaulters], they are businesses that struggled at some point. So you have to work out solutions that are around their cash flows,” Mr Russo told the Business Daily in an interview.
“I am not a fan of selling businesses. Our [debt recovery] strategy is about how to work with the client to get back on their feet.”
This appears to be a change in debt recovery strategy where the bank, just like its peers, has in the past unleashed auctioneers and debt collectors to seize property of borrowers who default or fall behind on repayments.
Some of the notable businesses whose property has been seized by KCB for defaults on loans are Pearl Beach Hotels —which owns English Point Marina in Mombasa —and ailing Mumias Sugar.
KCB Group’s share of non-performing loans (NPLs) rose to 21.5 percent of gross loans in June from 17 percent in March, well above the banking industry’s average which rose to 14.73 from 14 percent over the same period.
The defaults are largely driven by KCB Kenya, which in June accounted for 73 percent of the group's Sh1.2 trillion assets, where the share of loans not being serviced climbed from 11.8 percent in September last year to 22.8 percent in June.
KCB has set a target to cut the group’s NPL ratio to between 15 percent and 17 percent levels by December and later into single-digit territory.
“I want to get my people [who are] experts on the subject matter whether it is KCB Capital [the investment banking arm] or others to see whether we are going to fundraise for those customers or take long-term restructuring. Selling and realizing securities is injurious to clients,” Mr Russo said.
“I wouldn’t mention the names, but some of the names that we have turned around is because we sought partners out of the country to put in money because the business models are viable.”
