Close to 99 percent of the 4.6 million loan accounts negatively listed with the country’s credit reference bureaus (CRBs) will have their data frozen following the suspension of reporting of defaults on Sh5 million and below.
Data from the CRBs show that the CRBs can only share default data from less than 50,000 loan accounts.
President Uhuru Kenyatta in September announced the moratorium on negative listing of borrowers with loans below Sh5 million with CRBs for a year, cutting credit information sharing in the banking sector.
The Central Bank of Kenya (CBK) has warned that commercial banks could restart rationing loans following the suspension of blacklisting of such defaulters.
The suspension is part of the measures to cushion borrowers hit by the Covid-19 pandemic.
It restricts banks from using defaulters’ data to deny millions of Kenyans additional loans to grow their businesses or for projects.
“What this means is that the removal of non-performing data of less than Sh5 million will affect 99 per cent of the non-performing base,” said Joseph Nyaga, the CEO TransUnion, in reference to President Kenyatta’s order.
TransUnion is one of Kenya’s three CRBs.
Mr Nyaga said the majority of the negative listings were for loans tapped through mobile phones.
A third of Kenyan loan accounts are negatively listed as defaulted with the CRBs in an economy where Covid-induced job cuts and business closures have pushed thousands of people into a debt trap.
Data from the CRBs show that the accounts negatively listed stood at 4.6 million out of the 15 million accounts, reflecting a jump from 3.2 million accounts in April last year.
Workers and businesses defaulted on bank loans worth Sh93 billion in the year to February following the imposition of stringent measures to contain the spread of the coronavirus.
Data from the Central Bank of Kenya (CBK) shows that non-performing loans (NPLs) rose from Sh351 billion in February 2020 to Sh444 billion at the end of February this year — the sharpest one-year increase in recent history.
But this excludes defaults from unregulated digital mobile lenders, who were also barred from forwarding the names of loan defaulters to CRBs.
Industries and other businesses had cut down on their activities in response to the infectious disease, leading to job cuts and unpaid leave for retained staff as profitable firms moved into losses.
This saw 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 one’s salary.
Firms that had borrowed based on the forecast of cash flows have also been struggling to repay their bank loans.
Nearly 730,000 jobs were lost last year when Kenya imposed coronavirus-induced lockdowns that led to layoffs and pay cuts, but the country’s economy is presently recovering.
These are the people President Kenyatta was seeking to protect through the CRB freeze order.
But the CBK reckons the move could constrict private sector lending growth.
CBK Governor Patrick Njoroge said recently that banks might shun lending to individuals and small traders at a scale last witnessed between September 2016 and November 2019 when Kenya capped interest rates.
Bankers say a lack of credit reference information could contribute to soaring costs of loans and stall lending to businesses due to incomplete borrowers’ information.
“The suspension could adversely impact the provision of credit by banks to the target (MSMEs) group as they will be unable to distinguish between the good and bad borrowers during the suspension period,” said CBK earlier.
Borrowers reported to one of Kenya’s three CRBs jeopardise their chances of being able to borrow more.
The suspension is the second since Kenya reported the first case of Covid-19 last year as the State moved to protect households and businesses from being locked out of credit.
The CBK ordered a six-month suspension of CRB listings in April last year as part of the measures to cushion borrowers hit by the pandemic.
The moratorium lapsed in October, allowing financial institutions to start sending names of defaulters to the CRBs.
Lenders, however, offered defaulters 90 days from October 1 to start repaying their loans or get blacklisted.
The Kenya Bankers Association, the lender’s lobby, says banks should be allowed access to credit information from the CRBs to forestall massive rationing akin to what was witnessed during the interest rate control regime.