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CRB list freeze hurts personal loans, lenders say

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CRB list freeze hurts personal loans, lenders say


Central Bank of Kenya. FILE PHOTO | NMG

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summary

  • It is estimated that 99 percent of the 4.6 million credit accounts negatively listed on CRBs will have their data frozen following the suspension.
  • Data from the CRBs shows that the companies can only share default data from fewer than 50,000 credit accounts.
  • The freeze on small borrower information sharing has prompted banks to rely on their own data to manage short-term default risk.

Suspension of listing of borrowers who are in default on loans of less than Sh5million hurts lending and credit risk management in personal loans, lenders say.

Banks were barred from reporting defaults that fell within the set limit for 12 months from October last year. The lockdown is set to end on September 30.

The move is seen as an attempt by the government to offer financial relief to Kenyans recovering from reduced incomes in the wake of Covid-19.

“The requirement to stop registering customers with loans under Sh5m with credit bureaus is likely to continue to impact our business performance, particularly in the retail banking space,” says Absa Bank Kenya in its latest annual report.

It is estimated that 99 percent of the 4.6 million credit accounts negatively listed on CRBs will have their data frozen following the suspension.

Data from the CRBs shows that the companies can only share default data from fewer than 50,000 credit accounts. Most of the negative entries concerned loans that were bugged via mobile phones.

Banks have used CRBs to weigh default risk and also as a deterrent. It is a particularly important tool in the unsecured personal loan category, where borrowers rely on small business salaries and income to repay.

The freeze on small borrower information sharing has prompted banks to rely on their own data to manage short-term default risk.

For example, a customer’s loan repayment history can be used to assess creditworthiness. Despite the suspension of the negative listing, personal lending was among the segments that grew, according to data from the Central Bank of Kenya.

Loans to households rose to Sh482.6 billion in February, up Sh16.7 billion from Sh465.9 billion in September last year.

Lending to the transport and communications sector saw the largest expansion, up Sh31.8 billion to Sh270 billion. Property was one of two sectors to see a contraction in credit, shrinking Sh3 billion to Sh410.4 billion.

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Richard Dement

The author Richard Dement