Inquiries about borrower profiles at credit reference bureaus (CRBs) hit a record 39.8 million last year as lenders step up scrutiny to reduce rising defaults.
Data from the Central Bank of Kenya (CBK) shows claims jumped 28% from 30.2 million a year earlier when defaults jumped 90.8 billion shillings amid economic hardship of Covid-19.
During the reporting period, the CBK had banned unregulated digital mobile lenders from forwarding the names of defaulting debtors to the CRBs and had ended the blacklisting of borrowers owing less than 1,000 shillings.
It also banned CRBS from sharing negative information with banks for loans under 5 million shillings that defaulted after October 2020.
The surge in demand for credit reports came in a year when Kenya’s economy rebounded to grow at the fastest pace in 11 years thanks to the easing of Covid-19 restrictions.
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The scrutiny has helped banks reduce defaults, with bad debts rising by 2.1 billion shillings last year.
“2020 was the year of confinement, resulting in a massive reduction in economic activities. This naturally led to a reduction in demand for credit, and then 2021 was kind of a year of recovery,” said StanChart CEO Kariuki Ngari.
The data shows that last year’s requests to CRBs represent just over a third of the total requests made separately by banks and individuals since 2015.
Banks made 38.6 million requests for borrower information, or 32% of the 120.54 million requests made by financial institutions from 2015 to 2021.
Personal credit report inquiries rose 29.5% to 1.15 million last year as more borrowers searched for their own credit scores, particularly in line with job application requirements .
Most employers require CRB clearance from job seekers.
Last year’s individual inquiries account for 37% of the 3.1 million inquiries made since 2015, as more Kenyans take advantage of the right to one free credit report per year.
Kenya suspended for a year a decision to blacklist borrowers with non-performing loans of less than 5 million shillings in early October 2020 in a bid to help small and medium enterprises.
The suspension, which came into effect last October, is part of a series of measures President Uhuru Kenyatta announced to boost the economy as it recovers from the effects of Covid-19.
The CBK said the measure would remain in place until September 30, 2022.
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The suspension prevents banks from using defaulters’ data to deny millions of Kenyans additional loans to expand their businesses or for projects.
It remains to be seen how the freeze will affect requests for borrower profiles from CRBs this year.
The CBK had warned that commercial banks could start rationing loans again following the suspension of the blacklist of these defaulters.
“The suspension could have a negative impact on banks’ granting of credit to the target group (MSMEs) as they will be unable to distinguish between good and bad borrowers during the suspension period,” CBK said more early.
Bankers also said a lack of credit reference information could contribute to soaring loan costs and the stranding of business loans due to incomplete borrower information.
Borrowers reported to one of Kenya’s three CRBs jeopardize their chances of getting more credit. The share of loan defaults rose to a one-year high, indicating a cash crisis in the economy that could prompt thousands of borrowers to foreclose on their belongings.
The latest CBK data shows that 14.1% of all loans were in default at the end of April, the largest 12-month increase on a year.
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The stock of bad loans had risen to 473 billion shillings by March this year. The share of defaults had fallen to 13.1% in December but has since risen. Banks that slowed home foreclosures last year in the wake of the pandemic may now be forced to step up debt collection efforts to clean up their loan books, which could lead to a spike in auctions.
The CBK says the delinquent loans are mainly in the building and construction, manufacturing and trade, and transport and communications sectors, noting that businesses and individuals who had taken out new loans due to the increased cash flow with the reopening of the economy are struggling. to service their loans.