Commercial banks are shunning forceful auction of property seized from loan defaulters in favour of private settlement after Kenya’s soft economy slashed asset prices below the minimum bid value set in law. FILE PHOTO | NMG Commercial banks are shunning forceful auction of property seized from loan defaulters in favour of private settlement after Kenya’s soft economy slashed asset prices below the minimum bid value set in law.
Under private treaties, distressed borrowers agree with banks to look for the best available price for their properties and sell to repay loans as opposed to relying on the auctioneer’s hammer.
The move has given banks room to get around the Land Act 2012, which bars them from auctioning seized assets at below 75 percent of the prevailing market value.
Sluggish economic activity, which has worsened in the wake of Covid-19, has created a growing pool of distressed borrowers whose assets are being seized by newly aggressive lenders.
But the auctioneers are not selling as fast as they are repossessing due to the minimum bid price, leaving a glut of repossessed vehicles, land, houses and office equipment as cash-strapped buyers seek to buy the properties cheaply and at outsized discounts.
Lenders are now shifting to private treaties to cut the glut of repossessed properties, stepping back from the industry norm where auctioneers forcefully seize assets for public sale.
Bank chief executives reckon that few takers have offers that match the reserved bid prices, prompting expensive repeat advertisements for property auctions and high storage costs.
Stanbic Bank Kenya CEO Charles Mudiwa said that the hitch brought home by the reserve price law has forced lenders to increasingly turn to private treaties.
“With these restrictions, we have found ourselves unable to dispose of assets over a longer period, which is very expensive to the bank. We are now actively pursuing private treaties as it has several benefits,” said Mr Mudiwa.
“Higher sale prices are attained as we are not selling under duress and it is also much cheaper since it cuts out costs associated with lawyers and auctioneers.”
Lenders also say private treaties help them retain relationship with customers as opposed to the animosity that comes with forced auctions.Non-performing loans in the banking industry rose to Sh377 billion in May, up from Sh210 billion in January 2017, reflecting a jump of 79.5 percent. Mounting defaults Banks have in recent years stepped up debt recovery efforts to clean up their loan books, leading to […]