Economy

Auctioneers sue banks for snubbing forced sale of seized assets

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Auctioneers says banks are denying them commissions earned from forceful sale of defaulters’ property. FILE PHOTO | NMG

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Summary

  • Auctioneers says banks are denying them commissions earned from forceful sale of defaulters’ property.
  • The lobby says the practice of sidelining auctioneers has encouraged illegal fees payment, undercutting and malpractice in the profession.
  • The auctioneers want KCB, Cooperative Bank, Family Bank, NCBA and SBM Bank stopped from seizing, advertising and selling vehicle reposed from defaulters.

Auctioneers have launched a court bid to stop banks from shunning forceful sale of property seized from loan defaulters in favour of private settlement.

The National Association of Kenya Auctioneers (Naka) says banks are denying them commissions earned from forceful sale of defaulters’ property.

Banks have recently turned to private treaties where distressed borrowers agree with the lenders to look for the best available price for their properties and sell to repay loans as opposed to relying on the auctioneer’s hammer.

The move has given banks room to get around the Land Act 2012, which bars them from auctioning seized assets at below 75 percent of the prevailing market value in Kenya’s soft economy that has slashed asset prices.

Naka says in court papers that banks have been using unlicensed agents and sometime directly advertising for sale attached and distressed goods.

The lobby says the practice of sidelining auctioneers has encouraged illegal fees payment, undercutting and malpractice in the profession.

“That at all material times relevant to this suit, Kenya Bankers Association’s members have illegally issued instructions, repossessed, advertised and sold loan securities without the involvement of the National Association of Kenya Auctioneers members, prescribed an illegal fees schedule and encouraged undercutting,” Naka secretary-general Darius Kimwele said in an affidavit.

The law gives auctioneers powers to repossess and advertise assets for sale upon storage in their secured yard.

The auctioneers are entitled to a commission of 10 percent if the sold property is valued at less than Sh100,000, five percent for it’s worth between Sh100,000 and Sh1 million and two percent if it exceeds Sh1 million.

The auctioneers want KCB, Cooperative Bank, Family Bank, NCBA and SBM Bank stopped from seizing, advertising and selling vehicle reposed from defaulters.

High Court judge David Majanja, however, declined to issue an injunction saying the matter was not urgent and that banks have not been heard in the suit.

“Interim orders are granted where the court, in exercising its discretion is satisfied that they are necessary due to the urgency and nature of the circumstances. Interim orders are not suitable if by their grant, they finally determine the substantive dispute. The courts must be wary of prejudgment of the substantive merits,” Justice Majanja said.

Auctioneers reckon banks are taking over their roles and forcing them to accept lower fees for repossessing property that are ultimately sold by the lenders through private settlement.

Sluggish economic activity, which has worsened in the wake of Covid-19, has created a growing pool of distressed borrowers whose assets are being seized by newly aggressive lenders.

But the auctioneers are not selling as fast as they are repossessing due to the minimum bid price, leaving a glut of repossessed vehicles, land, houses and office equipment as cash-strapped buyers seek to buy the properties cheaply and at outsized discounts.

Lenders are now shifting to private treaties to cut the glut of repossessed properties, stepping back from the industry norm where auctioneers forcefully seize assets for public sale.

Bank chief executives reckon that few takers have offers that match the reserved bid prices, prompting expensive repeat advertisements for property auctions and high storage costs.

Lenders also say private treaties help them retain relationships with customers as opposed to the animosity that comes with forced auctions.

Non-performing loans in the banking industry rose to Sh403.9 billion in October, up from Sh349.9 billion at the end February — the sharpest eighth-month increase in recent history.

Banks have in recent years stepped up debt recovery efforts to clean up their loan books.