Unpaid loans hit 10.7 per cent, triggering auctions and cash woes

This Wednesday, at least 135 vehicles bought recently through bank loans, and whose owners have been unable to repay the debt, will start their journey to new owners.

Advertisements from two banks in local dailies last week asked Kenyans to send bids for the 135 vehicles, with reserve prices set for each.

The highest bidder for each will be the eventual buyer.
Kenya Commercial Bank (KCB) advertised 97 vehicles for sale while NIC Bank offered 38 — with a notice that there were more on its website.

VEHICLES

The public has until Wednesday to send written bids where they should indicate the amount they can offer for the machines.

The banks asked interested buyers to visit various auctioneering firms across Kenya to view the vehicles.

Ninety-three of the advertised vehicles, or 68 per cent of them, are commercial automobiles — trucks, tippers and trailers — showing a trend where people buy vehicles for business but are unable to pay for them.

Interestingly, their registration numbers start with “KB” and “KC”, meaning they were registered fairly recently.

CASH STRAPPED

Given September’s announcement by the Central Bank that Sh2.8 billion of banks’ non-performing loans is owed by those who do business with the national and county governments, the common inference is that government suppliers are cash-strapped.

Leakey’s Auctioneers, one of the firms that are currently storing the auction vehicles, says the current political situation is partly to blame for the phenomenon.

In an interview with Reuters published last week, Leakey’s managing director George Muiruri said they were holding 10 auctions a month, up from about four in the past year.

Mr Muiruri added that the number of vehicles stored in their yards awaiting sale had doubled in the past one year to reach 1,500.

BANK-REGISTERED

“Because of this political environment, people are postponing very many plans,” he told Reuters, adding that they repossess more property than they sell.

A contact person at KCB said the vehicles on sale are still registered under the bank and so no buyer should worry about legal complications.

“The initial owners knew they had a contractual obligation to finance their loans. Because the vehicles are still registered with the bank, we have the right to sell them,” she said.

Sale of the motor vehicles, where buyers will have the possibility of getting loans to settle the debts, is just one manifestation of the rise in non-performing loans.

UNPAID LOANS

In August, unpaid loans rose to 10.7 per cent from 9.9 per cent the previous month, according to the Central Bank.

It is the first time since 2007 that the percentage has hit double digits.

Besides the Sh2.8 billion being held by government contractors, Sh5 billion of the non-performing loans is owed by local manufacturers while another chunk is sinking in real estate sector.

Despite the rise in unpaid loans, Kenya Bankers Association CEO Habil Olaka says the situation has not yet hit crisis levels.

NOT PATIENT

In the instance of broke government suppliers, he reasoned, the situation can be corrected after new administrations clear the path for withheld cash.

“It is a temporary thing. Once the electioneering process is through, the new government will open up payments once more,” he told the Nation.

However, there is concern that banks are not patient enough when it comes to bearing with debtors because of the law capping interest rates since 2016.

“Banks have become more aggressive,” Mr Felix Apollo, chairman of the National Association of Kenyan Auctioneers, told Reuters in the article published last week.

Seeking payment for injuries in dog attack cases an uphill task

Water supply disrupted as Kisumu protestors destroy pipe