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Banks lock out more than 600,000 loan defaulters

By By NICHOLAS WAITATHU | September 25th 2013
CBK Governor Prof Njuguna Ndung’u.  Kenyans defaulting on loan repayment has been on a steady rise in hard economic times.


Lenders in Kenya have blacklisted more than 600,000 loan defaulters in the last three years.

Central Bank of Kenya Governor Prof Njuguna Ndung’u said yesterday banks and microfinance institutions have barred thousands of loan defaulters who have contributed to the high rate of non-performing loans in the market.

Speaking during the launch of the 2nd regional Credit Information Sharing conference at a Nairobi hotel, Ndung’u said from the information shared by the commercial banks and microfinance institutions, more than 600,000 customers who had stopped servicing their loans have been locked out from any further access to credit.

In 2010, the Banking Act 2013 was amended to allow credit information sharing (CIS) by all banks through the Credit Reference Bureaus (CRB) licensed by the Central Bank. 

According to the Bank Supervision Annual Report 2012, gross loans grew by 11.7 per cent from Sh1.1 trillion in December 2011 to Sh1.3 trillion in December 2012, a growth attributable to increased demand for credit by the various economic sectors. However, the report further indicated the ratio of non-performing loans to gross loans increased from 4.4 per cent in December 2011 to 4.7 per cent in December 2012.

The increase in non-performing loans signalled an increase in credit risk, which was largely attributable to high interest rates in the first half of 2012.

Association of Microfinance Institutions (AMI) Chief Executive Benjamin Nkungi said over the years, owing to fasttracked reforms, the number of loan defaulters has decreased but non-performing loans still pose a serious challenge in the financial sector. Kenya Bankers Association (KBA) Chief Executive Habil Olaka said the reported number of loan defaulters follows information so far shared by the banks. “The CIS mechanism was initiated to assist weeding out of loan defaulters in the market as well as ensuring customers deepen their relationship with financial institutions,” said Olaka.

He added that non-performing loans forms 5 per cent of the total loans in the market adding that based on the reforms being undertaken in the market the figure will decrease significantly.

New borrowers

Ndung’u observed that since the start of the CIS platform, there has been increased usage of credit reports by banks in credit evaluation, with the cumulative requests amounting to 2.9 million as at June 30, 2013. “This has greatly contributed to improved risk lending, expedited lending decisions and improved loan repayment culture, thus minimising the information asymmetries that dominated the lending process in the banking industry,” said Ndung’u. 

“We have succeeded in unlocking funds previously tied up in non-performing loans and thus making them available to new borrowers.”

However, Ndung’u stated that despite the positive developments so far registered, the system has faced some challenges. “The cost of credit still remains high for most borrowers,” he added.

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