Capital Markets

CRB listing freeze hurting personal loans, say lenders

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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • It is estimated that 99 percent of the 4.6 million loan accounts negatively listed with CRBs will have their data frozen following the suspension.
  • Data from the CRBs show that the firms can only share default data from less than 50,000 loan accounts.
  • The freeze on sharing information on small borrowers has left banks to rely on their own data to manage the default risk in the short term.

The suspension of listing of borrowers defaulting on loans of less than Sh5 million is hurting lending and credit risk management in personal loans, lenders say.

Banks were stopped from reporting defaults falling within the set limit for 12 months starting October last year. The freeze is scheduled to end on September 30.

The move is seen as an effort by the government to offer financial relief to Kenyans who are recovering from reduced incomes in the wake of Covid-19.

“The requirement to cease registering customers with loans below Sh5 million at credit reference bureaus is likely to continue to impact our business performance, especially in the retail banking space,” Absa Bank Kenya says in its latest annual report.

It is estimated that 99 percent of the 4.6 million loan accounts negatively listed with CRBs will have their data frozen following the suspension.

Data from the CRBs show that the firms can only share default data from less than 50,000 loan accounts. Most of the negative listings were for loans tapped through mobile phones.

Banks have been using CRBs to weigh the risk of default and also as a deterrent. It is a particularly important tool in the personal unsecured loans category where borrowers rely on salaries and income from small businesses to repay.

The freeze on sharing information on small borrowers has left banks to rely on their own data to manage the default risk in the short term.

A customer’s loan repayment history, for instance, can be used to gauge creditworthiness. Despite the suspension of negative listing, lending to individuals was among the segments that registered growth, according to Central Bank of Kenya data.

Loans to households rose to Sh482.6 billion in February from Sh465.9 billion in September last year, an increase of Sh16.7 billion.

Lending to the transport and communication sectors had the biggest expansion by Sh31.8 billion to Sh270 billion. Real estate was one of two sectors to record a drop in credit, shrinking by Sh3 billion to Sh410.4 billion.

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