CRB listing freeze ends as loan defaults jump

The six-month freeze on listing loan defaulters with credit reference bureaus (CRBs) ends on Wednesday, paving the way for blacklisting of thousands of borrowers if the moratorium is not extended.

The Central Bank of Kenya (CBK) announced the suspension of CRB listing for loans that were defaulted from April 1 and the relief from blacklisting lasted for six months up to September 30.

The CRB listing relief was part of a stimulus package announced on March 25 to cushion distressed businesses and individuals from the effects of the coronavirus pandemic, which has hit consumer demand and forced businesses to shed jobs and cut back on their operations.

Now, borrowers who have defaulted on their loans in the wake of coronavirus economic fallout risk being blacklisted, hurting their chances of being able to borrow more.

Failure to extend the suspension means that banks, saccos and microfinance firms will be free to provide negative credit information to the three CRBs, shifting the focus to CBK governor Patrick Njoroge.

The end of the CRB listing freeze comes at a time the banking sector is struggling with mounting unpaid loans whose share has risen to the highest level since August 2007.

Jared Getanga, the CEO of Credit Information Sharing Association of Kenya, a forum for bank and non-bank credit providers, reckons that the CBK is yet to offer directions on the end of CRB listing freeze.

“We are waiting for the CBK to provide guidance, the matter is in their hands. It cannot just happen automatically because some aspects of resumption need guidance,” Mr Getanga told the Business Daily in an interview.

More than 3.2 million Kenyans are listed as loan defaulters with the CRBs in an economy where job cuts and near-stagnant wages had left thousands of people in a debt trap.

Data from the CRBs show that the accounts that are negatively listed have jumped from 2.7 million last year, most of them linked to mobile digital borrowers.

The default rates have jumped in the wake of the coronavirus outbreak. This could increase in the number of defaulters reported to Kenya’s three CRBs — Metropol, TransUnion and Creditinfo International— if the CBK opted not to extend the listing relief.

Workers and businesses defaulted on loans worth Sh30 billion in the four months to June when Kenya imposed stringent measures to contain the spread of the coronavirus.

The CBK data shows that non-performing loans (NPLs) rose to Sh379.9 billion in June, up from Sh349.9 billion at the end February — the sharpest four-month increase in recent history.

The NPL growth emerged in a period when Kenyans deferred payments on nearly a third of the bankers’ total loans, a pointer that defaults — which is credit that remains unpaid for more than 90 days — could have been worse without the credit rescheduling.

The ratio of NPLs rose from 12.7 percent in February to 13.1 per cent — the highest since August 2007 when it stood at 14.41 percent.

Industries and other businesses have since cut down on their activities in response to the infectious disease, leading to job cuts and unpaid leave for retained staff as profitable firms move into losses.

This has seen workers paying mortgages and unsecured loans for purchase of goods such as furniture and cars and expenses like school fees default. Unsecured loans are given on the strength of one’s salary.

Firms that had borrowed based on the forecast of cash flows have also been struggling to repay their bank loans.

The defaults also came when banks have restructured loans worth Sh844.4 billion or 29 percent of industry total credit to ease the pain for borrowers and to avoid a sharp increase in defaults.

The restructuring involved non-payment of loans for up to three months and extension of credit tenures, which translates to lowering of monthly repayments.

The persistent spike in bad loans highlights the depth of economic hardship the Covid-19 pandemic has brought on borrowers, with banks now taking a cautious approach to approving fresh loans.

Mr Getanga says the CBK needs to clarify whether the suspension of reporting defaults occurring in the six-month period is permanent or not.

The CBK will also need to give directions on how lenders and CRBs will treat the restructured loans, some of which saw the payment of principal or interest deferred for up to 12 months.

“We need some guidance on the restructured loans. For example, if someone was given a six-month moratorium not to pay, will they have zero arrears?” he posed.