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Absa writes off Sh1.8bn mobile loans in CBK plan

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Absa bank along Muindi Mbingu Street in Nairobi. PHOTO | EVANS HABIL | NMG

Absa Bank Kenya disclosed it has written off Sh1.8 billion worth of digital loans, a move that has seen about 400,000 customers taken off the list of defaulters with credit reference bureaus.

It is the latest bank to reveal debt forgiveness after NCBA Group which cancelled more than Sh11 billion in the initiative by the Central Bank of Kenya (CBK).

The plan, dubbed Credit Repair Framework, seeks to improve the credit standing of mobile digital borrowers whose loans were non-performing and had been listed by CRBs.

“[Following] the recent request coming from the President to delist digital borrowers, today close to about 400,000 customers who were borrowing from our digital platform (Timiza) have been delisted and the written-off figure is Sh1.8 billion,” Absa’s interim chief executive Yusuf Omari said at an investor briefing.

This indicates that the lender had disbursed loans amounting to Sh3.6 billion.

Banks are required to write off half of the sums defaulted on digital loans.

Absa said it will engage with its customers using its digital platform who defaulted on their short-term borrowings so the lender can recover 50 per cent of the pending amounts.

“The delisting will actually help our collection effort because, for the loans we’ve written off already, we expect a payment of 50 per cent which is marked as recoveries,” said Moses Muthui, Absa’s interim chief finance officer. The credit repair will cover more than 4.6 million Kenyans blacklisted by CRBs for defaulting on mobile loans.

The plan addresses loans with a repayment period of 30 days or less and those offered by banks, microfinance banks and mortgage finance companies through mobile phones.

READ: Absa profit jumps 30 per cent on increased lending

NCBA said it will write off more than Sh11.25 billion of bad loans under its digital platforms, emerging as the hardest-hit lender due to its large market share in the segment.

The lender said it was engaging borrowers under its digital platforms —Fuliza and M-Shwari— who have defaulted on short-term loans to cancel 50 per cent of the amount and repay half within six months.

The CBK said that the total value of the short-term credit facilities is approximately Sh30 billion, equivalent to 0.8 per cent of the gross banking sector loan portfolio of Sh3.6 trillion at the end of October 2022.

Debt forgiveness is an attempt by the government to give borrowers — mostly comprising individuals with low incomes— a chance to rebuild their creditworthiness and regain access to formal financial services.

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The value of digital loans is small compared to total bank lending but they have the biggest uptake among the unemployed, the working class and small business owners.

Several studies have shown that many people juggle multiple digital loans which are repaid daily or monthly.

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