The Covid-19 pandemic has been ruthless to some individuals and businesses.  

For Uber drivers who gleefully took up loans from Stanbic Bank for the acquisition of the now-ubiquitous Suzuki Alto cars, the pandemic has turned out to be their worst nightmare. 

The lender, which pompously entered into the financial arrangement with the ride-hailing app, has viciously been auctioning the cars after the distressed drivers failed to service their loans.

But it is not just taxi drivers whose property is being auctioned in the wake of the pandemic.

The virus has only precipitated the fall of some companies that were already struggling before the virus, amid an economic downturn. 

More than 17 firms at the Nairobi Securities Exchange (NSE) issued profit warnings last year and the corporate scene has witnessed a wave of lay-offs as the effects of the pandemic hit home. ?

And auctioneers are back and busier than before, as they take up acres of space in local dailies, announcing auctions of properties whose owners have been further exposed by the current situation.

The rising bang of the auctioneers’ hammer has coincided with a spike in bad loans in the books of commercial banks.

Banks’ profitability declined sharply between February and May, with experts citing the surge in non-performing loans (NPLs), or loans which have not been serviced for more than three months.

The Monetary Policy Committee (MPC), Central Bank of Kenya’s (CBK) highest decision-making organ, noted in a statement that although NPLs in the banking sector remain stable and resilient, the ratio of total bad loans to gross loans rose to 13.1 per cent in June, compared to 13 per cent in May.

Year-on-year, the ratio was at 12.6 per cent in June last year. “NPL increases were noted in the manufacturing, trade and personal sectors, due to a subdued business environment,” said MPC.

The toxicity of the bad loans has poured over into the auction market.

Barely a week into August, two three-star hotels have already been put under the hammer.

The hospitality industry has been one of the hardest hit by the virus, with Kenya losing Sh80 billion so far in tourism revenue.

The industry’s mainstay – tourism, events and conferences – have dried up owing to travel restrictions and other measures meant to curb the spread of the virus.

Dozens of landlords managing retail space have also dispatched auctioneers to recover rent arrears from failing businesses.

Banks have hired auctioneers to dispose of the Laibon Hotel in Nairobi’s South B and the Hotel Grace Villa and Guest House in Ngara.

At an auction set for next week, Kenya Shield Auctioneers hope the six-storey Laibon Hotel can fetch between Sh175 million and Sh190 million.

“You know too well what the coronavirus has done to the hotel industry,” said a representative from the auction firm when Financial Standard sought to know reasons why the hotel had been put under the hammer.

The Laibon Hotel has 56 rooms, a bar, a restaurant and offices sitting on 0.115 acres.

“Under instructions received from our principals, the chargee in exercise of their statutory powers of sale conferred upon them. We shall sell by public auction the following property together with all the improvements erected thereon,” said a public notice by Kenya Shield Auctioneers.

“The property is developed and operated as a modern three-star hotel providing accommodation and other recreational facilities trading in the name and style of Laibon Hotel,” added the notice.

Garam Investment Auctioneers is seeking Sh112.5 million for the Hotel Grace Villa and Guest House that is located near Jamhuri High School and The Hennesis Hotel on Limuru Road.

Grace Villa is estimated to return monthly rent of Sh1.2 million.

It has shops at the front, a butchery, bar, restaurant, meeting room, 11 guest rooms, servant quarters and a proposed club fitted with soundproof walls on the stage. 

“The plot extends to approximately 0.27 acres and is developed with an Asian type house modified to a commercial block partly as a hotel or guest house,” said Garam Investment Auctioneers.

This year has, however, not been rosy for banks that have repossessed prime properties from defaulting clients and put them under the hammer.

Buyers have become hard to find amid a property slump that has persisted over the last few years. 

Garam Investment Auctioneers is yet to find buyers for some of the prime properties on its books. They include the Sh400 million Upper Hill Hotel and the Sh75 million Roof Garden Hotel in Machakos that is associated with former Cabinet minister Gideon Ndambuki.

Both have an estimated monthly rent of Sh5 million and Sh1 million respectively.

Other prime properties proving hard sell include beach properties, a three-bedroom villa at the prestigious Great Rift Valley Lodge, a penthouse at the Mirage in Westlands and some shops at the NextGen Mall on Mombasa Road.

The retail space in the property market has also been one of the hardest hit sectors.

Troubled retail chain Tuskys Supermarkets was recently staring at the auctioneer’s hammer over rent arrears at the Nakuru Midtown branch. It survived after striking a deal with the landlord.

Legacy Auctioneers had announced that the retailer’s items would be sold to recover more than Sh12 million rent arrears owed to its client.

The items included household items such as generators, fridges, gas and electric cookers, blenders and television sets.

Rental relief

Malls have been reluctant to offer rental reliefs to tenants.

In less than two weeks, eight businesses at the Garden City Mall on the Thika Superhighway are facing the auctioneers’ hammer owing to rent arrears.

They include restaurants, a clothes and shoes store and a beauty parlour.

One of the affected tenants told the Financial Standard that she moved out and closed her business in December last year after she realised the business of selling African attire was not gaining traction.

Moreover, the rent was prohibitive, and attempts to get rebates from the management bore no fruit.

For Uber drivers, according to David Muteru, chairman of Digital Taxi Association of Kenya, things started to unravel after the government imposed a stay-at-home order that has been in place over the last three months. 

Taxi drivers couldn't

“While other people could stay at home, taxi drivers could not,” he explained.

“Saccos and microfinance institutions had given us three months. Once that grace period lapsed, they came for the vehicles,” he said.

Moreover, added Mr Muteru, verification documents required by Uber could not be processed from authorities like National Transport Safety Authority and Kenya Police because of the lockdown, leaving many drivers without a source of income.  

“Drivers had also been getting vehicles on hire purchase from a trader in Mombasa,” he explained.

“But this dealer did not offer a grace period and has auctioned a lot of taxis.”

An Uber spokesperson told The Standard in an earlier interview that the company had reached out to its drivers to educate them on suitable arrangements for repayment of loans in accordance with existing Central Bank of Kenya recommendations.  

It is not as though things were any better for Uber drivers before Covid-19 came around. But somehow they were able to service their loans from Stanbic Bank.

Uber did not only have a financial arrangement with Stanbic for the acquisition of the tiny Suzuki Alto, whose 800cc engine capacity and fuel consumption is comparable to the three-wheeled tuk-tuk.

Uber had not anticipated another problem for these new car owners. Occasionally, some of them would have difficulty fueling or paying for insurance or repair and maintenance.

As a result, Uber entered into another lending arrangement on behalf of its drivers with another San Francisco-based digital lender, Branch. 

Today, Branch is not giving out loans after CBK locked out mobile lenders from using credit reference bureaus.

Even worse, business has hugely dwindled due to the stringent containment measures that have restricted movement of people.

The financial sector will shrink further under the blow of Covid-19, which has seen bank profitability in April drop by 87.7 per cent compared to the same month in 2019.

CBK data shows that commercial banks registered a profit before tax of Sh7 billion in April compared to Sh56.8 billion in the same month last year.

This is as most lenders set aside cash as insurance against the spike in bad loans.

Excess liquidity

Profit before tax for the banking sector was on an upward trajectory until the effects of Covid-19 started being felt around February, as the world shut down, affecting such sectors as hospitality and aviation.

In January, banks had made a gross profit of Sh13.2 billion. This went up to Sh24.7 billion in February, Sh38.4 billion in March before plunging to Sh7 billion in April.

As people’s incomes dwindled, bad loans in the period under review rose sharply to Sh376 billion, or by 24 per cent, from Sh302.5 billion in April last year as borrowers distressed by the pandemic struggled to meet their loan obligations.

Following the stringent containment measures aimed at curbing the spread of Covid-19, a number of businesses have shut down while hundreds of thousands of employees have been laid off or sent on compulsory leave.

A volatile environment has also seen banks refuse to lend to the private sector, with most of them parking their excess liquidity in government securities at lower interest rates.

Workers who have been lucky to remain on payrolls have had to consent to salary cuts, which has seen most of them negotiate for a change in terms of their personal loans.

So far, commercial banks have restructured loans valued at Sh844.4 billion, nearly a third of their loan book, according to CBK data.

This has eaten into their profitability, with most lenders putting aside money as insurance in case of defaults.?  

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