Embrace amicable bank loan recoveries

Business loan concept. FILE PHOTO | NMG

It is encouraging that commercial banks are embracing alternative ways of recovering debts instead of forcible seizure and auction of loan defaulters' properties.

The repossession of assets and painful auction often cause animosity and sours the relationships between lenders and their customers.

The goodwill shown by NCBA and Co-operative Bank to surrender Kaluworks to billionaire Manu Chandaria’s Comcraft Group, which they had seized in pursuit of a Sh6.6 billion debt, should be emulated by other financial institutions.

The lenders opted for private arrangement after balking at having to inject Sh750 million to revive one of Kenya’s largest manufacturers of aluminium utensils and roofing sheets, amid hurdles in getting a buyer for the firm.

Kaluworks’ shareholders have agreed to pay the bankers Sh1.2 billion to lift the receivership, with NCBA and Co-op Bank opting to cut their losses.

Private treaties allow distressed borrowers to find the best available options to repay loans without leaving them worse off and also help retain relationships with their bankers. Financial institutions can help individuals and companies back to their feet, saving jobs.

Auctioneers are not selling as fast as they are repossessing after Kenya’s soft economy slashed asset prices below the minimum bid value set in law. Indeed, auctions should be the last resort since they also deny borrowers a source of income when they are kicked out of business.

It is equally important for policymakers to put in place credit guarantee schemes that cushion lenders in case of spikes in loan defaults.

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