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January 20, 2018

Kenyans face auctions as bank defaults rise

Vehicles for auction in Leakey’s Auctioneers yard, Nairobi, on September 29,2017 /REUTERS
Vehicles for auction in Leakey’s Auctioneers yard, Nairobi, on September 29,2017 /REUTERS

Kenyans are paying a high price for the economic slowdown experienced last year due to political uncertainty and poor weather, with most losing property to auctioneers due to loan defaults.

A spot check on local dailies shows that the number of auction advertisements are on the rise, with each paper running a minimum of five pages of advertisements per day, mostly targeting tenants and vehicle owners.

Speaking to the Star on phone, Motorists Association of Kenya chairman Peter Murima revealed that at least 50 members are losing their vehicles per day through public auctions.

‘’Borrowers are under siege from banks. Although they got the right to recover funds from defaulter, they must also consider effects of slow economy witnessed last year that cut across all sectors. The high rate of auctions being witnessed in the country is killing families,’’ said Murima

In October last year, the association wrote to the Kenya Bankers Association (KBA) to condemn the increased auctions of vehicles by banks from loan defaulters, terming them callous and insensitive. KBA is yet to respond.

However, KBA’s director of communications and public affairs Nuru Mugambi while acknowledging an upward trend in bad loans in the country termed auctions as bank’s last resort in recovering funds

“Banking is a relationship industry. It puts interests of clients first hence gives defaulters a safe negotiation window to repay. Auctioning is the last resort. The sector is also feeling the heat of economic slowdown, made worse by the interest cap law that affected margins,’’ said Mugambi.

Non performing loans have been on rise in the country, shooting from 9.5 per cent in the first quarter of 2017 to 9.9 per cent in June, with the Central Bank foreseeing a further surge last quarter of the year.

The increase in loan default means that more Kenyans are expected to lose more property to the hummer man.

Kenya Commercial Bank saw its first half 2017 non performing loan rise to Sh316.3 million from Sh313.5 million in 2016, where Sh295 million was attributed to debt owed by the struggling retailer Nakumatt and Kenya Airways

Equity Bank’s bad loan grew astronomically to Sh20.36 billion in the first half of year compared to Sh12.9 billion same period 2016

However, experts in the banking industry are confident that the new accounting standard, IFRS9, will help prone out potential defaulters as it help banks to analyse borrowers intensively. The IFRS Standards which came into effect on January 1 2018, require banks to set aside funds in advance to mitigate loan defaults.

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