Banks will be hit hard by the National Land Commission’s move to revoke title deeds in various parts of the country.
The property located in Nairobi, its environs and other major towns that have high value have been fodder for the lenders, who readily accept them as collateral for loans.
On Wednesday, Kenya Bankers Association chief executive officer Habil Olaka said banks that have lent out based on the affected titles will definitely face losses, even though he could not ascertain the level of the anticipated losses.
“We have not been able to tell the level at which these changes have affected banks because I think it is now a routine for NLC to revoke titles,” he said.
“But those banks which have used the property as collateral will definitely be affected because they will be holding collaterals whose value they cannot realise in case of a default,” Mr Olaka said.
The move may also cause more banks to hesitate lending based on titles with fears over the authenticity of the documents.
A further reason to slow lending other than the interest rates capping will also hurt earnings from the lenders in the long term.
Growth of credit to the private sector fell for the eighth straight month in May following the introduction of the law capping rates in September last year.
Banking sector data compiled by the Central Bank of Kenya shows the growth of credit to the private sector fell to 2.1 per cent over the 12 months to May 2017 down from the 2.4 per cent recorded in April.
According to the CBK, about 60 per cent of the credit to the private sector goes to real estate, manufacturing, trade and personal loans.
The real estate borrowers largely rely on the title deeds to secure loans for development of houses.
More freezing in credit supply in the market will also have an overall impact to many other sectors of the economy, signifying the ripple effect land document authenticity scares may cause to the larger economic growth of the country.
Move gives many public institutions and individuals land commission says had been grabbed.