The latest study by the Kenya Bankers Association (KBA)shows projects worth billions of shillings financed through loans are demolished annually for not meeting environmental safeguards.
''Land surveys and cadastral maps often do not demarcate expected riparian boundaries. This has given way to real estate development being designed and constructed on riparian zones,'' the study reads in part.
It adds that delays due to litigation by those affected affected also contributes to great to both client and financiers.
The study also brings into focus the existing overlap between mandates of different government agencies leading to premature termination of projects further contributing to losses to borrowers and by extension lenders.
KBA chief executive officer, Habil Olaka now wants policymakers to address the disparities in riparian and wildlife migratory environmental regulations.
''By harmonising the spatial land use plans and the wildlife laws, we can reduce the financial risks to both banks and Kenyans. It is our collective responsibility to ensure the stability of the banking industry by encouraging sound risk assessment and management,'' says Olaka.
His sentiments are echoed by FSD Kenya CEO Tamara Cook who called on financial institutions to factor in environmental risks into their business strategies and operations.
This, she noted, will become increasingly important, as Kenya transitions into an industrial economy traditionally associated with intensive resource consumption and pollution.
''FSD Kenya is keen to support the financial sector to embrace sustainable finance principles as a key enabler of the transition to a green and climate resilient development pathway that Kenya aspires to attain,'' Cook said.
The survey comes just four years after the government threatened to demolish 4,000 buildings built on waterways in Nairobi.
During the operation conducted in 2018, Java restaurant, Shell Petrol Station in Kileleshwa, the multi-billion shilling Southend Mall along Lang’ata Road-Mbagathi Way roundabout, Ukay Centre in Westlands and Taj Mall along Mombasa Road were brought down.
Nakumatt Thika Road suffered a similar fate in 2008 to pave way for the constriction of Thika Super Highway.
This caused jitters among investors, especially in the real estate sector in the country, hurting the investment index which dropped to a five-year low of 48.9 per cent in 2019.
This has since edged up, with the latest Knight Frank report ranking Kenya's capital among the top 45 global cities that posted growth last year in the annual Prime Global Cities Index
Ranking 32nd, Kenya’s capital posted a 3.5 per cent change in growth in the period from 2021 first quarter to 2022 first quarter.
Even so, the sector accounts for a huge chunk of bad loans in the country, hitting Sh473 billion in March.
The latest CBK data shows that 14.1 per cent of all loans were defaulted by end of April, the sharpest 12-month increase over a year.
''Defaulted loans are mainly in the building and construction, manufacturing and trade as well as transport and communication sectors,'' CBK said.
According to the regulator, banks that had gone slow on property seizures last year following the pandemic could now be forced to step up debt recovery efforts to clean up their loan books, which could lead to a spike in auctions.
It did not, however, indicate the share of loan default arising from demolished properties.
