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CRB listing starts today as 90-day freeze lapses

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Central Bank governor Patrick Njoroge. FILE PHOTO | NMG

Banks will from Monday start listing thousands of loan defaulters with credit reference bureaus (CRBs) following the expiry of the three-month notice period for blacklisting borrowers of unpaid credit.

Lenders offered defaulters 90 days from October 1 to start repaying their loans after the Central Bank of Kenya (CBK) lifted the six-month freeze for listing borrowers who have failed to pay loans in the wake of the coronavirus economic fallout.

Now, the lenders are free to list the defaulters with Kenya’s three CRBs — Metropol, TransUnion and Creditinfo International.

The CBK announced the suspension of CRB listing for loans that were defaulted after April 1, and the relief, which was aimed at cushioning Kenyans from the economic fallout that came with Covid-19, lasted for six months to September 30.

But the banks and saccos are supposed to warn defaulters 90 days ahead of listing them with the three CRBs.

This is emerging at a time the banking sector is struggling with mounting unpaid loans whose share has risen to the highest level since August 2007.

CBK data shows that non-performing loans (NPLs) rose to Sh403.9 billion in October, up from Sh349.9 billion at the end February — the sharpest eighth-month increase in recent history.

This means that workers and businesses have defaulted on loans worth Sh53.95 billion between the onset of coronavirus restrictions in March and October.

“If a loan is in arrears after 60 days from October 1, a financial institution will, in accordance with the existing procedures, give the borrowers notice of the intention to list them with the CRBs,” CBK governor Patrick Njoroge said earlier.

“If the loan has not been regularised after the 30-day notice period, the financial institution will then list the non-performing loan with the CRBs.”

Thousands of defaulters look set to be reported to the three credit bureaus, jeopardising their chances of being able to borrow more.

The NPL growth emerged when Kenyans deferred payments of 46.5 percent of the bankers’ total loans or Sh1.38 trillion, 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 13.6 percent — 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.

The rise in defaulted credit looks set to trigger a jump in property auction as banks move faster to seize assets from defaulters in a year when a majority of top lenders are expected to issue profit warning on costs linked to bad loans.

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.

Millions of workers lost jobs last year when Kenya imposed coronavirus-induced lockdown that led to layoffs and pay cuts.

This has seen workers who had tapped 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 salary.

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

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

Data from the CRBs show that the accounts 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 the number of defaulters reported to the three CRBs.

The CRB listing relief was part of a stimulus package announced on March 25 to cushion distressed businesses and households from the effects of the pandemic.

The Treasury has downgraded Kenya’s growth forecast for the year to 0.6 percent amid the economic fallout from the Covid-19 pandemic — making it the lowest expansion in 12 years.