Rise in loan defaulters forces banks to adopt cautious lending policy

Default on loans touched record levels last year, prompting banks to adopt stringent lending conditions including mandatory credit information.

Central Bank of Kenya (CBK) data showed banks increased requests for credit information by over 100 per cent last year, in a year where more Kenyans have been blacklisted for defaulting in paying their loans.

Bad loans hit Sh207 billion by the third quarter last year, the highest ever in the country’s financial history attributed to tighter loan classifications enforced by new CBK Governor Patrick Njoroge as well as company layoffs and business cash flow constraints.

According to the Central Bank’s financial statements, bank credit report requests jumped from three million in 2015 to six million, a 107 per cent jump, while micro-finance banks doubled from 176,619 to 294,813.

“The credit information sharing mechanism remained a key input in the decision-making process of credit providers in Kenya as they sought to mitigate risks associated with information asymmetry,” Central Bank said.

The report covers June 2015 to June 2016, long before President Uhuru Kenyatta signed the rate capping into law, which made banks more restive to lending and credit reports even more crucial.

Mr Peter Kimani Runo, who last year petitioned Parliament to scrap Credit Reference Bureaus claimed 700,000 had been listed in their database as defaulters.

According to the CBK data, Kenyans also became more curious about their status last year with a total of 88,371 requesting their credit status, up from 44,023 in 2015.

Kenya has three CRBs--- Trans Union, Metropol and Credit information that are licensed by the CBK. They allow Kenyans to make at least one request for their credit reports a year for free.

However, one may have to pay a registration fee of about Sh100 for registering under Metropol as this writer found out and Sh650 for subsequent reports from Trans Union.

“To complete registration, and see whether you are in the Gold or Black list and get a free credit report every year, please pay off a one off fee of Sh100...,” Metropol mobile-based Crystobol service message read in part.

Kenyans have been surprised to discover that they have been listed for flimsy reasons including failure to close old unused accounts, very little unpaid balances, unresolved overdrafts, joint accounts, and guarantees for loans without their information.