Banks are turning to repeat auctions to speed up the sale of repossessed cars, houses and land at discounted prices as tight economic conditions knock off property valuations.
The lenders, alarmed by the rising portion of loans for which principal and interest have not been paid for at least 90 days, are instructing auctioneers to re-advertise bids for repossessed assets.
Some of the properties being re-advertised have suffered a drop in valuation due to factors such as depreciation and tight liquidity conditions in Kenya’s soft economy, leading to reserve prices that are now closer to previously received bids.
As a result, there is a glut of repossessed vehicles, land, homes and office equipment being sold off cheaply across Kenya.
Auctioneers, who had seen deal-making slow down significantly, say the annual valuations as required by law have been trending downwards and this could prove vital in unlocking sales.
The price of the seized assets has fallen by slightly over 10 percent in recent months, bankers and auctioneers say, keeping sales in line with the Land Act 2012-- which bars the forced sale of seized property at below 75 percent of the prevailing market value.
Banks that had gone slow on property seizures in the wake of Covid-19 economic hardships have stepped up debt recovery efforts to clean up their loan books, leading to the spike in auctions for property seized a few years ago.
“There is not much liquidity in the market now for individuals and businesses as well. A lot of the auctions we are seeing are not necessarily new but are repeated auctions. The market has not been good. There are not many takers,” said John Gachora, the NCBA Group managing director.
“The auction pages in newspapers have been growing. It is unfortunate that there are so many auctions going on. We haven’t fully recovered from Covid-19 and we had elections last year and things tend to slow down during the elections period.”
Sky-high inflation, prolonged political uncertainty and severe drought that hit the dominant agriculture hard have slowed economic activities.
This, coupled with the slow recovery from Covid-19 economic hardships, is creating a growing pool of distressed borrowers whose assets are being seized by newly aggressive lenders in the East African powerhouse.
Central Bank of Kenya (CBK) data show the ratio of gross non-performing loans (NPLs) to gross loans stood at 14 percent in February compared to 13.3 percent in December last year, being the highest in six months.
Increases in NPLs were noted in the trade, personal and household, manufacturing and building and construction sectors, the CBK said.
The unpaid loans rose from Sh357 billion in March 2020 and Sh210 billion in January 2017 to Sh487.7 billion in December.
They fell from Sh505.9 billion in November, following auctions and repayments.
Timothy Awuor, the lead auctioneer at Nairobi Connection Services Auctioneers, says the repeated auctions are generally at reduced reserve prices compared with a year earlier.
“Developments such as Covid-19, the Russia-Ukraine war, softened demand and the generally slow pace of the economy have seen the value of many properties go down. There are many cars being sold now and so the prices are going down especially given that there is not much money in circulation and the pace of auctions is generally still very low,” said Mr Awuor.
He added that many auctioneers were now teaming up with brokers in getting buyers to up the pace of deals as prices soften.
Property valuation reports usually base the figures on market value, insurance value and forced sale value.
Section 97 of the Land Act 2012 requires banks to exercise a duty of care on the repossessed properties and empowers defaulters to sue if their assets are sold off cheaply.
Mr Gachora, whose bank advertised an auction of 65 vehicles with a reserve price of Sh193.59 million, says some of the auctions being witnessed now relate to customers who have failed to resume loan repayments after the Covid-19 restructuring.
“There are some who were given relief during Covid-19 time. And now that the relief is over, they may not be able to service the debt. But that is monitory. About 95-97 percent [of the value of loans restructured during the Covid-19 period] is performing,” said Mr Gachora.
Other top banks such as Equity Group, KCB, Cooperative Bank and HF Group are also using their websites to list properties on sale, including cars, land, residential and office blocks.
Banks are also complementing auctioneer’s hammer with private treaties arrangement where distressed borrowers agree with lenders to look for the best available price for their properties and sell to repay loans.
