Economy

Hunt for loan defaulters in 27 collapsed banks

bank

Customers outside an Imperial Bank branch in Mombasa after it was shut down. PHOTO | KEVIN ODIT

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Summary

  • Kenya Deposit Insurance Corporation (KDIC) has launched the search for individuals and businesses that defaulted on loans tapped from 27 collapsed banks.
  • The agency is seeking a management company to auction or run the operations of the firms in defaults to recover unpaid loans in failed banks like Chase, Imperial and Dubai Bank.
  • The collapsed banks, excluding Chase Bank and Imperial Bank, had unpaid loans of Sh45.51 billion at the end of June 2018, the latest data KDIC show.

Kenya Deposit Insurance Corporation (KDIC) has launched the search for individuals and businesses that defaulted on loans tapped from 27 collapsed banks.

The agency is seeking a management company to auction or run the operations of the firms in defaults to recover unpaid loans in failed banks like Chase, Imperial and Dubai Bank.

The collapsed banks, excluding Chase Bank and Imperial Bank, had unpaid loans of Sh45.51 billion at the end of June 2018, the latest data KDIC show.

Many individuals and businesses stopped servicing their loans once distressed banks were placed under receivership, hurting the ability of depositors to recover their savings.

The agency has now evoked Section 50 and 55 of the KDIC Act 2012 that allows it to recover billions of shillings in unpaid loans, overdrafts and other credit facilities linked to the collapsed banks.

“In line with the above powers the receiver/liquidator seeks to appoint a competent management company to oversee the operations of some of the borrowers of problem banks to recover the amount borrowed from the banks,” says the KDIC.

The agency will be relying on the legal charge documents held by the banks as securities for the outstanding loans at the time they were placed in receivership or liquidation.

KDIC had by end of June 2018 recovered Sh10.12 billion, being an equivalent of about a fifth of the entire outstanding loan book at the time the banks fell into liquidation, showing the extend of defaults.



Central Bank of Kenya had in 2018 said large borrowers in Chase Bank stopped servicing loans making about Sh20 billion to go into bad debt status.

Such defaulters will be among those to be pursued by KDIC in a market that has about 27 lenders put under liquidation since 1993.

Some 17 of the 27 banks collapsed between 199 and 1999 under the cloud of weak supervision, with Postbank Credit, Trade Bank, Kenya Finance Bank, Trade Finance and Heritage Bank being among the affected.

This was then followed up with the collapse of Prudential, Reliance and Fortune banks in 2000 before Kenya’s banking sector experienced about five years of stability following the tightening of supervision.

The sector was however rattled in 2015 and 2016 when three banks—Chase, Imperial and Dubai—collapsed, hurting the market confidence.

Depositors’ money had up to June last year been fully insured up to Sh100,000 but this was raised to Sh500,000 to enhance protection.

The management company picked by KDIC will be required to be registered with the Institute of Certified Public Accountants of Kenya, meaning that audit and advisory firms are in line for this job.

Firms such as PricewaterhouseCoopers, Deloitte and PKF have for instance played a role in several businesses that were put under receivership over debt distress.

KDIC says that the management company will be required to step up loan recoveries and also secure possession of the assets of the respective defaulters for the interest of depositors.

The selected company will where considered appropriate be allowed to sell the defaulting companies’ assets and distribute the realised money to depositors and other creditors.