How to protect assets from auctions during financial distress

Last year, the Central Bank of Kenya announced emergency measures to cushion bank borrowers from the adverse economic effects of the Covid-19 pandemic.

Borrowers were given restructuring options, including an extension of the repayment period, moratorium on principal, interest or both and waivers on restructuring fees.

The measures were to allow borrowers time to ride the pandemic, mitigate job losses and pivot their business models to the new normal. The end of the relief on June 3, 2021, saw outstanding loans revert to the original borrowing terms.

However, Covid-19 continues to affect businesses, requiring more time to recover. Banks have committed to supporting individuals and businesses to recover from the effects of the pandemic.

To minimise risks of default, banks have been working closely with borrowers to enable them to get good credit standing. NCBA Bank, for example, has in place teams to address customer queries and advise on recovery options.

When faced with financial strain, engage your banker to explain your situation and develop a workable solution to your challenges before the situation becomes untenable.

Bankers are attuned to diagnose a business that is under stress by identifying signs such as a constant shortage of cash, low sales growth or decline in revenues, falling margins and lower than expected profits, rise in either creditor or debtor payment days and default on payments.

Being aware of these signs can help prevent failure. The key thing, like any illness, is to catch the symptoms early so that you begin to identify the root cause and manage it accordingly.

When a customer suffers a short-term financial setback such as a medical emergency, the bank may provide some breathing room by agreeing to let you skip an instalment and amalgamate it into the outstanding loan.

Borrowers can also request for adjustment of the tenor of their loans by extending them to attain a manageable repayment amount in form of lower instalments.

There is a perception among Kenyans that if you are unable to make your loan instalment payments, the auction of your property is inevitable.

Lenders usually want to avoid auctions as it comes with inconveniences and additional expenses, including engaging lawyers and sales agents.

Getting help is a good way of ensuring you do not also end up facing legal challenges like owing the bank money even after repossession and sale of your asset. If you avoid contact with your lender, you may miss out on options to save your property from going under the hammer.

For example, if the business is unlikely to recover, you can discuss with your bank to explore the possibilities of selling the assets as a way out of the auctioneer’s hammer.

This is advantageous to you and the lender. While dealing with financial distress can be challenging, partnering with the right bank to support you through good and bad times can see avoid or minimise the distress.

The writer is Group Director Asset Finance and Business Solutions, NCBA