KDC to write-off Sh33bn disbursed loans

KDC director-general Norah Ratemo.

Photo credit: File | Nation Media Group

The board of directors of the Kenya Development Corporation (KDC) has approved a write-off of 86 percent of total disbursed funds, an audit has revealed, signalling knocks on the State agency’s ability to disburse credit to new borrowers.

KDC provides long-term financing to businesses, especially the micro, small, and medium enterprises.

Latest disclosures indicate that KDC cannot recover Sh33.44 billion out of the total Sh39.06 billion loan disbursements— meaning that nearly 86 percent of the loans it expended cannot be recovered.

“The respective loan records indicated that approximately Sh33,444,612,767 or 86 percent of the corporation’s total loans portfolio estimated at Sh39,069,865,477 as of June 30, 2023, was considered by management as non-recoverable,” Auditor-General Nancy Gathungu said in a report.

The audit report notes that the high rate of non-performing loans (NPLs) at the KDC- compared to the NPLs ratio of about 15 percent in the banking sector- exposes its inability to manage billions of shillings it gets to support investments in crucial sectors, adding that the State firm could fail to meet its mandate.

“The board of directors has approved the full provision for the losses totalling Sh33,444,612,767 against the corporation’s reserves as required by International Financial Reporting Standard No9. However, the high ratio of non-performing loans portfolio indicates that the corporation is unable to recover most loans owed by its customers. As a result, the corporation’s capacity to lend to new borrowers and eventually attain its purpose and mandate may be constrained,” the audit notes.

It adds that securities attached to some of the loans are missing, impaired, or irredeemable. “In addition, the securities related to some of the old non-performing loans being borrowers’ ancestral lands, were reported to be missing, impaired, or irredeemable,” Ms Gathungu says.

Established in 2020 following the merger of the Industrial and Commercial Development Corporation , Tourism Finance Corporation , and IDB Capital Limited, KDC is the government’s development finance institution with the mandate to provide long-term financing and other financial, investment, and business advisory services where commercial banks have failed.

The institution offers debt financing such as project finance, working capital and asset finance, and equity financing.

But the audit now notes that its inability to collect debts after lending out to investors has crippled the corporation, with some of the loans staying unpaid for years.

“Further, the Corporation has stopped accrual of interest on the loans in line with the In Duplum rule, which requires that interest accrued should not exceed the principal amount outstanding when the loan becomes non-performing,” the audit notes.

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