CBK warns of loan rationing over CRB freeze


Central Bank of Kenya Governor Patrick Njoroge. PHOTO | SALATON NJAU | NMG

The Central Bank of Kenya (CBK) has warned that commercial banks could restart rationing loans following the suspension of blacklisting of defaulters with Sh5 million loans and below.

The caution came even as the banking regulator gave the nod to the moratorium on negative listing of borrowers with loans below Sh5 million with credit reference bureaus (CRBs) for a year, cutting credit information in the banking sector.

CBK Governor Patrick Njoroge said on Monday banks may shun lending to individuals and small traders at a scale last witnessed between September 2016 and November 2019 when Kenya capped interest rates.

Bankers say a lack of credit reference information could contribute to soaring costs of loans and stall lending to businesses due to incomplete borrowers’ information.

President Uhuru Kenyatta on October 20 announced the suspension of CRB listing for loans that were defaulted from October last year, with the relief set to last till September next year.

The CRB listing relief is part of a stimulus package to cushion distressed businesses and households from the effects of the Covid-19 pandemic, which has hit consumer demand and forced businesses to shed jobs and cut back their operations.

But the CBK reckons the move could constrict private sector lending growth.

“The suspension could adversely impact the provision of credit by banks to the target (MSMEs) group as they will be unable to distinguish between the good and bad borrowers during the suspension period,” the CBK said in a statement.

“This could lead to rationing of credit as was evident during the period of interest rate caps from 2016 to 2019.”

The CBK guideline follows publication of a legal notice by Treasury Cabinet Secretary Ukur Yatani last Friday to enforce the October 20 presidential directive.

Borrowers reported to one of Kenya’s three CRBs jeopardise their chances of being able to borrow more.

The suspension is the second since Kenya reported the first case of Covid-19 last year as the State moves to protect households and businesses from being locked out of credit.

The CBK ordered a six-month suspension of CRB listings in April last year as part of the measures to cushion borrowers hit by the pandemic.

The moratorium lapsed in October, allowing financial institutions to start sending names of defaulters to the CRBs. Lenders, however, offered defaulters 90 days from October 1 to start repaying their loans or get blacklisted.

The Kenya Bankers Association (KBA), the lender’s lobby, said banks should be allowed access to credit information from the CRBs to forestall massive rationing akin to what was witnessed during the interest rate control regime.

KBA said at least one million “risky” customers were shut out of credit when the government imposed the cap, which limited commercial rates to within four percentage points of the central bank rate.

KBA chief executive Habil Olaka insisted the CBK circular has prohibited listing of negative credit data with the CRBs and not access to information on borrowers.

“We may not necessarily have rationing if the implementation is done in a careful manner so that banks still have some access to the creditworthiness of the borrower even though the entity is not listed,” Dr Olaka said.

“What the central bank has suspended is the issue of blacklisting, but otherwise the rest of the CIS [credit information sharing] mechanism should continue.”

The fresh move is aimed at cushioning distressed small businesses and families from negative listing with CRBs for defaulting on a loan of less than Sh5 million from April 2020, in a bid to boost economic recovery from the pandemic shocks.

Dr Njoroge, however, says this could be counterproductive for MSMEs as the banks will be reluctant to give credit to borrowers without access to recent credit history.

Lenders partly rely on borrowing history under credit information sharing mechanism — where banks, saccos and microfinance firms share data with CRBs—when lending to the MSMEs, which usually do not have collateral such as title deeds for land and buildings.

“The CIS mechanism aims to bridge the information gap about borrowers’ creditworthiness by considering the borrower’s credit history and allowing credit to be priced accordingly,” Dr Njoroge said in the statement.

“A good credit record demonstrates the borrower’s higher creditworthiness and should lead to a lower cost of credit.”

The ratio of non-performing loans to total loans in the banking sector stood at 13.9 percent or Sh441.8 billion in August from 14.2 percent or Sh438.3 billion in April.

More than 14 million loan accounts had been negatively listed with CRBs in January this year, underscoring the struggles Kenyans are having with repayments amid sluggish recovery from Covid poundings.

“The suspension is targeted to rope in the MSMEs and for a specified duration that will provide space to turn around their businesses,” Dr Njoroge said.

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