NCBA Bank will write off more than Sh11.25 billion of bad loans under its digital platforms being the hardest-hit lender in the recent banking sector framework aimed at removing Kenyans from negative credit listing.
The lender has said it is engaging borrowers under 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.
This comes after the Central Bank of Kenya (CBK) announced a credit repair framework seeking to remove phone digital borrowers from negative listing on credit reference bureaus (CRBs) and improve their credit standing.
The outstanding value of non-performing loans (NPLs) disbursed through digital platforms was estimated at Sh30 billion at the end of October. Out of this, Fuliza and Mshwari combined account for Sh22.5 billion over a 10-year period, with a significant part under the overdraft facility shared with Safaricom and KCB, Fuliza.
This means NCBA Bank which controls the lion’s share in the digital lending market of about 75 per cent will cancel the largest share of these loans at Sh11.25 billion as the country’s banking industry moves to adopt the credit score method.
“Of the Sh15 billion, M-Shwari and Fuliza combined we are accounting for Sh11 billion of that. The context is important; we are looking as far as back as 10 years against most digital lenders who have existed from the last year,” NCBA chief finance officer David Abuya said.
‘’We have already instituted this change. We have already completed the reclassification of more than five million M-Shwari and Fuliza customers. The communications to each individual began going out on Wednesday.’’
The framework is expected to enable more than 4.2 million mobile phone digital borrowers negatively listed with CRBs to repay the balance and be issued with a credit score if they complete within the window of up to May 31, 2023.
The framework will cover loans with a repayment period of 30 days or less and those offered by banks, microfinance banks and mortgage finance companies through mobile phones.
“Our plans are well advanced and effective December 1, all recent customers will be getting a discount of at least 50 per cent. We will also be considering enhancing that discount for customers who would be able to pay back sooner,” Abuya added.
The total value is Sh30 billion, representing 0.8 per cent of the gross banking sector loan portfolio of Sh3.6 trillion at the end of October 2022.
Mobile loan uptake and defaults have been rising since Covid-19 hit.