Members of Parliament on Thursday directed a commercial bank to explain how interest on a loan shot up drastically, which may have contributed to default and subsequent auction of security put up for it.
The National Assembly’s Finance, Trade and Planning Committee was hearing a petition in which Kenya Commercial Bank (KCB) reportedly sold the Sh700 million 443-acre Muiri Coffee Estate, the property of a guarantor, for Sh70 million, which is a tenth of its value, in 2007.
The petition by Gatanga MP Humphrey Njuguna also seeks to know why the bank sold the guarantor’s property instead of that of the principal borrower, Mr James Muigai, to recover a Sh11.5 million loan advanced to Benjoh Amalgamated Ltd.
KCB chief executive Joshua Oigara, who appeared before the committee, said the bank would provide details of how the interest shot to Sh44 million from Sh4 million in two years.
The petition states that Sh6 million was paid in 1994 to clear a Sh11.5 million loan advanced to Benjoh, leaving a balance of Sh3.4 million.
But in March 1996, the bank informed the widow of the borrower that the outstanding balance stood at Sh44.3 million.
The KCB boss, however, said all the issues raised by the MPs had been heard and determined by the courts in favour of the bank.
“This matter has been in the court for the past 28 years and the courts have ruled in favour of the bank, including the highest court in the land,” Mr Oigara said.
The CEO said banking provisions do not provide for the “hierarchy” for the bank to dispose of the security of the borrower or guarantor in case the former defaults on the loan.
He added that the lender has discretion to sell whichever property it deemed fit to recover its funds, depending on the marketability and the viability of the assets in question.
The committee, chaired by Ainamoi MP Benjamin Lang’at, also directed the banker to provide details of why the bank did not follow a clause providing for “limited guarantor” and went ahead to recover the principal amount and accrued interest.
Nominated MP Oburu Oginga said the rules of natural justice dictated that the bank should dispose of the property of the principal borrower to recover its funds and not the guarantor’s.
“The bank seems to have dug into the legalistic details to sell off the guarantor’s property first, yet it is the borrower that defaulted,” Dr Oginga said.
“Rules of natural justice and common sense dictate that you should have sold the borrower’s property first. Does the bank have any interest in the matter?”