Capital Markets

CRB suspension slows down banks’ risk-based lending


A customer is served at a bank branch. FILE PHOTO | NMG

Banks have been slow to expand lending to individuals and small businesses based on their risk profiles, citing the inability to assess their creditworthiness.

Close to half of the institutions have received approvals from the Central Bank of Kenya (CBK) to implement risk-based lending where riskier borrowers can obtain loans but at relatively higher interest rates.

A directive suspending reporting of defaults on loans below Sh5 million has hampered the rollout of the differentiated lending framework on mass market loans due to the inability to use the credit reporting system.

“Our main concern has been on how to manage the risk profiles of our customers when we are blind-sided by the lack of additional non-banking data,” said Mr Chiera Waithaka, the chief risk officer at Absa Bank Kenya during the launch of the State of the Banking Industry Report 2022.

The report was published by the Kenya Bankers Association (KBA).

The average lending rate in the industry stood at 12.22 percent in May, representing a marginal movement that signals the slow pace of lending to riskier clients who would be charged higher interest.

The lenders say they lack all the supporting data necessary to accurately estimate a client’s risk profile and know the level of a bank’s exposure.

President Uhuru Kenyatta in September last year announced the moratorium on the negative listing of borrowers with loans below Sh5 million by credit reference bureaus (CRBs) for a year, cutting credit information sharing in the banking sector.

The directive took effect in October last year and is scheduled to end on September 30.

The suspension of the listing of loan defaulters was part of the measures to cushion borrowers hit by the Covid-19 pandemic.

The directive, while protecting current defaulters, has slowed down lending, especially for individuals and small enterprises which are seen as riskier compared to large companies.

More banks are now free to charge higher rates on loans to riskier borrowers and are waiting for the resumption of unrestricted credit reporting to better assess the creditworthiness of specific customers.

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