More properties fall under auctioneers’ hammer as State fails to pay suppliers

By Lee Mwiti | Published Tue, March 13th 2018 at 09:41, Updated March 13th 2018 at 09:44 GMT +3
Some of the cars to be auctioned at a freight warehouse

In summary

  • SMEs are the biggest victims of a renewed campaign by lenders to recover unpaid loans

A visit to Leakey’s Auctioneers vehicle storage yard in Nairobi’s Industrial Area is met with a beehive of activities as zealous salesmen saunter along the lined up vehicles trying to make a sale.

They chat and haggle with unwilling clients, tagging along while inspecting the cars.

One of the salesmen puts on a smack, tired face after a whole day without sealing a deal.

“There is a Toyota Sienta here. A seven-seater 1300 cc. I can give it to you if you can part with Sh570 000. Good for taxi business. You can try Uber with it,” the salesperson, who we withhold his name for fear of reprisal, urges this writer resignedly.

I try to haggle, but he stands his ground. “The banks are our client. They have brought all these vehicles here after failed asset finance deals with their customers,” he explained.

“The vehicles have been repossessed from those who can’t service their loans. The banks have given us specific prices that we can’t go below. They want to recover their money.”

Vehicles are not the only assets that are going under the auctioneers hammer in large numbers. Another spot check across mainstream newspapers show many adverts of land and houses in posh Nairobi estates up for sale as lenders go after loan defaulters to recover their cash.

Apart from the Industrial Area yard, Leakeys operates two other yards with a larger one located along Mombasa Road. “There are plenty of other vehicles for sale in our other two yards. You can go and check. We have more than 3,000 vehicles in the two yards,” the salesman says.

Something remarkable about this Industrial Area yard is the huge number of commercial vehicles under the auctioneers’ hammer. Two Toyota Coaster tourist vans are up for sale.

Next to them, two Isuzu FSR lorries, Mitsubishi FJX3 tipper, Mercedes Benz Actros Prime Mover and a Nissan matatu line up, they too up for sale. “All these are commercial vehicles repossessed by banks after failed businesses. The banks have come down really hard on us pressurising us to look for buyers. Unfortunately, there are no buyers. The situation is tight,” the salesman says.

And true to his word, a week ago, auctioneers surprised everyone when they took a whole five pages in a local daily to advertise the sale of second-hand cars in different yards. Every day since last year, newspapers are replete with advertisements seeking buyers for second-hand cars.

The advertisements have evolved from small, almost incomprehensible spaces in the classical newspaper pages, to full page, coloured announcements with a host of vehicles repossessed by banks for sale.

That Leakey’s Auctioneers are brimming with repossessed commercial vehicles underlines the difficult times that businesses have fallen into while trying to raise working capital to keep them afloat.

A lot of time, commercial entities would normally run to banks seeking a bailout to cover working capital requirements.

This usually ensures continuity of the business even when a delay in payments arises, which in recent times has become the norm rather than the exception.

But with slowed lending being felt across all sectors since August 2015, especially after the interest rate cap law took effect, chances of these businesses getting refinancing from banks have dimmed. With reduced chances of a bailout, any disruptions in cash flow translate into serious ramifications for businesses.

On top of that, non-performing loans among Kenyan lenders have risen 11 per cent as of August 2017, according to data from the Central Bank of Kenya.

In worse scenarios, it stretches to staff rationalisation or even closing shop. The ripple effect of job losses could also explain the rise in vehicle repossessions.

Kenya Commercial Bank (KCB) recently revealed that it had been forced to auction over 250 vehicles over unpaid loans, mostly in the hands of those doing business with county governments.

According to KCB Chief Executive Joshua Oigara, delays by the Government to pay Small and Medium Size Enterprises (SMEs) has seen many entities lose their commercial vehicles to auctioneers’ hammer.

This, he noted was “the biggest” problem facing the SME sector. “Guys are losing their genuine business vehicles not because they never did the job but because they have not been paid. This year, we have sold like 250 vehicles,” said Oigara.

Mr Oigara, whose bank had a loan book of Sh419.5 billion as at September last year, said it was a worrying trend that may need a change in the law to save SMEs from the painful scenario.

He said SMEs’ payments have been pending for 24 months despite having supplied goods or services to the government.

He feels the sector should have a law to compel counties to pay SMEs as promised. “We are selling vehicles and I‘m sure the owners did nothing wrong.

They did the job, transported the materials, delivered goods and sent invoices but are waiting. Most of them have not been paid for almost two years,” said Oigara. NIC Bank, another lender which has heavy leaning on asset financing products, has also been forced to auction vehicles.

NIC Executive Director Allan Dodd says defaults have gone high but admits that this is a normal occurrence and banks are simply exercising their rights according to the agreement they signed with customers.

“It is a normal occurrence. Banks have to lend even as the default rate goes up,” Allan says.

The economy has been battered over the last few years with about five per cent growth supported by State spending even as the real economy struggles. Banks have cut loans to guard against non-performing loans which have hit Sh230.6 billion as borrowers struggle to pay, and in some cases are forced to surrender their hard-earned assets.

National debt

The debt situation is something that individual borrowers are sharing with the government as Kenya’s national debt spirals to the uncontrollable figure of Sh4.5 trillion.

Institute of Economic Affairs Chief Executive Kwame Owino says increased auctions and loan defaults being reported by banks is a pointer to the general economic gloom that is being experienced in the country.

“People are cutting down on consumption. Little business is going on and business people are struggling and this reflects quite badly on the country’s economic standing,” Kwame avers. “Though not a key benchmark, the increased loan defaults are a pointer to how suppressed the economy is.”

In an interview, Association of Kenya Auctioneers Chair Felix Apollo said that since the rate cap law, banks fast-tracked seizure of property from defaulters. He said the glut on the market of repossessed vehicles was salient comparing with times before. “Commercial lenders have become more aggressive,” he noted.

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