Kenyan debtors struggle to hold on to assets as repossessions rise

Kenyan borrowers struggle to hang onto their assets as auctions heat up. A severe drought earlier this year, a slowdown in bank lending, and a prolonged period of political uncertainty are creating a growing pool of distressed borrowers whose assets are being seized by newly aggressive lenders in the east African powerhouse.

NAIROBI, KENYA (SEPTEMBER 29, 2017) (REUTERS) – At a yard in Nairobi, cars remain parked on a dusty lot waiting to be sold at an auction, but there have not been enough buyers lately, an increasing problem as Kenya’s economy slows and repossessions pick up.

A severe drought earlier this year, a bank lending slowdown and prolonged political uncertainty are creating a growing pool of distressed borrowers whose assets are being seized by newly aggressive lenders in the east African powerhouse.

George Muiruri, managing director of Leakey’s auctioneers, says they are holding 10 auctions a month, up from about four a year ago.

Muiruri auctions vehicles ranging from luxury cars to battered workhorses once owned by painstakingly-built small businesses.

“We have seen an upsurge of attachments and this is mainly because of the economic factors and the economy of this country is a bit slow and therefore people are not able to meet their financial obligations,” said Muiruri.

There is a glut of repossessed vehicles, land, homes and office equipment being sold off cheaply across Kenya.

At Leakey’s, which also operates three separate storage yards around Nairobi, the number of vehicles stored awaiting sale doubled to 1,500 in the past year, Muiruri said.

Bank credit, formerly easily available, has dried up after the government capped commercial lending rates last year, leaving lenders unable to refinance seized assets.

Non-performing loans in the banking industry rose to 10.7 percent in August, from 9.9 percent in June, the central bank said, jumping into double digits for the first time since 2007.

“You see some of the items we attach we sell them and they are refinanced by banks. Because of this capping the banks have put very stringent measures on lending so this again has affected the sales and definitely the capping is affecting the whole scenario because of economy, said Muiruri.”

Kenya’s free market credentials, staunch alliances with Western nations and relative stability in a region roiled by conflict has made it the richest economy in East Africa and a favored regional headquarters for global firms like Google, IBM and General Electric.

But growth slowed to five percent in the second quarter of this year, below the official year’s forecast of 5.5 percent, as a prolonged election season took its toll.

Kenya held presidential, parliamentary and local elections on Aug. 8, but a Supreme Court ruling on Sept. 1 annulled President Uhuru Kenyatta’s re-election and ordered a fresh contest, now scheduled for Oct. 26.

Now even that date is in doubt; opposition leader Raila Odinga says he will not participate unless the election board fires officials that he blames for irregularities in August polls.

Analysts say people stopped investing in real estate or businesses waiting to see the outcome of the election.

Jared Osoro is the director of forensic and policy at Kenya Bankers Association.

“It basically speaks more to the difficult economic circumstances because we are talking about auctioneers meaning those assets of the banking industry that are being sold. There are some assets that are being not sold that are being recognized as having a poor health and that can be seen from the level of non-performing loans which have also increased. So when you see an increase in the level of non-performing loans and the auctioneers saying that they are doing booming business and that basically tells you that the economic circumstances are difficult and that also tells that the growth numbers that we have been seeing in the recent past needs to be interpreted in perspective because it simply tells you that the growth we are seeing is not because of the vibrancy of the private sector instead its public sector expenditure driven growth and there is a limit beyond which you can push an economy on the back of public expenditure if growth from the private sector is muted,” said Osoro.

Delays in payments are choking small business as clients are not able to honour payments making it difficult for entrepreneurs to service loans.

“Business is very slow; the banks that have financed our car loans end up repossessing the cars because we have not serviced loans. Your client has not paid up after 90 days, yet you are depending on them to run your business. If there is a delay of 90 days then you will also delay loan payment for 30 to 60 days, so if you have not paid in 30 days the bank takes your car,” said John Wambua, who transports water tanks to retailers.

“There are good car deals at the auction, but at the same time, I will invest my one million in one car and I will not have anyone to sell it to because people are shy to invest in anything because they are not sure of what will happen after the elections,” said car dealer, Ruth Wangui.

Many businesses want elections over before investing further, mindful of the weeks of post-election violence that followed the disputed 2007 presidential poll, killing around 1,200 people and plunging the economy into a nose-dive.