An increase in the number of financially crippled corporates is the new headache for banks, with some lenders in court battles to recover billions of shillings.
Firms once hailed as stable and with growing fortunes are joining the growing list of companies sweating to honour loan repayments, with the situation made worse by the Covid-19 pandemic.
Top banks have had to resort to the courts to recover their money, with some debtors put under receivership.
The decline of big names such as Uchumi, Kenya Airways, East African Cables, East African Portland Cement, ARM Cement, Kenya Power, TransCentury and Mumias Sugar was the first sign of struggle in corporate Kenya.
But the list continues to bulge with new names outside the Nairobi Securities Exchange (NSE) such as National Oil that are struggling to pay loans, with some either seeking repayment extension or defaulting.
It is a trend that KCB Group Chief Executive Joshua Oigara alluded to in an interview last November after the lender disclosed that 17.9 per cent of loans to large firms had gone for at least 90 days without being serviced at the end of September 2021.
The non-performing loans ratio for large corporates was the largest, beating that of the often vilified small and medium-sized segment at nine per cent. “It is a cycle that we find ourselves in. You can see the difficulties of some corporates listed on the NSE,” said Mr Oigara.
“Some of our corporates, especially in agricultural and manufacturing sectors, have had some difficulties. It is seasonality for corporates. It is not normal that they have high non-performing loans (NPLs). Usually, they are the best performing.”
But while for some corporates it is a seasonal challenge, for many it is the reality of the business environment. For instance, Mumias Sugar is now caught between a political and legal process amid debts and the existential threat has left a bad taste in banks’ mouths.
KCB, with a Sh545 million outstanding loan in the sugar miller, was the first to pull the plug.
It placed Mumias Sugar under receivership in 2019, triggering the long process that has since seen other lenders come forth to seek their money.
The miller also owes Ecobank Kenya Sh2 billion, Proparco Sh1.9 billion and the Commercial Bank of Africa Sh401 million. As the battle over the leasing of the miller continues, banks can only hope that their billions of shillings can be recovered.
In August last year, banks including Diamond Trust Bank (DTB) were forced to place biscuits manufacturer Britania Foods under administration after it defaulted on loans amounting to more than Sh1.3 billion.
The company, which has been operating for more than 30 years, is now up for auction, including a modern high-tech plant at Nairobi’s Industrial Area. Britania’s woes are not fully of its own making. The company attributed its downfall to the collapse of retail giants Nakumatt and Tuskys, which went under while owing it more than Sh50 million.
This raises fears that the exposure of banks in the collapse of Nakumatt and Tuskys is more than just the loans to the retailers. The fall may trigger defaults elsewhere.
In Nakumatt’s struggles, KCB, NIC and DTB also had their money stuck there. Other banks that had lent the retailer money include Standard Chartered, Stanbic, Absa, Bank of Africa, Habib and Guarantee Trust Bank.
Tuskys recently disclosed in court papers that it owes its creditors including banks and suppliers Sh19.6 billion, pointing to more bad news for banks.
While many large banks have put on a spirited fight in recovering their money, sometimes it is risky for small banks.
Lending to Kenya Airways and Uchumi, for instance, almost led to the collapse of Jamii Bora Bank before it was rescued by Cooperative Bank, which acquired a 90 per cent stake in the small lender and recapitalised it.
Jamii Bora’s decision to loan KQ Sh412 million, and buy a majority stake in Uchumi for Sh452 million, proved to be costly blunders.
KQ’s troubles caught 10 other banks including KCB (Sh0.82 billion), Commercial Bank of Africa (Sh3 billion), Co-operative Bank (Sh3.3 billion), I&M Bank (Sh0.82 billion), National Bank (Sh3.5 billion) and DTB (Sh2.06 billion).
The 10 were forced to convert their money, amounting to Sh23 billion, into a 38.1 per cent stake in the airline through a new holding firm, KQ Lenders Company 2017 Ltd.
Such deals are far from over. Victoria Commercial Bank was last year cleared to acquire a 24.89 per cent stake in Montessori Learning Centre, a Nairobi-based Kindergarten, in a debt swap deal after the school struggled to repay its loans.
Cash-strapped EAPCC has also been a challenge to KCB. The lender had at one point pushed to sell assets including land to recover its money.
But East African Portland Cement Company (EAPCC) indicated in an annual report for last year that it sought shareholder approval and transferred land to KCB, yielding a Sh4.85 billion reduction in debt to the lender. “The company is at the tail end of the conclusion of the transfer of LR 8784/146 to KCB for settlement of the outstanding debt,” EAPCC said.
Courts continue to hear cases between banks and companies over debt repayments, showing that the troubles are far from over.
Stanbic Bank’s battle with Karuturi Ltd over a debt of Sh1.8 billion, for instance, went all the way to the Supreme Court before the lender was last year allowed to sell the flower firm’s assets to recover its money.
Karuturi, a grower of roses that was exporting more than one million stems annually, was put under receivership in 2014 after failing to repay Sh383 million borrowed from Stanbic.
NCBA mid last year placed Kaluworks Ltd, part of billionaire Manu Chandaria’s Comcraft Group, under receivership for defaulting on a $40 million (Sh4.3 billion) debt. In some instances, banks have run into challenges when the security under their custody becomes questioned by the same government that issued them.
For instance, KCB in 2020 had to defend the title deed on which Weston Hotel stands, against which it lent more than Sh1 billion to the hotel.
The National Lands Commission (NLC) later ruled that Weston was built on land owned by the Kenya Civil Aviation Authority (KCA).