CRB suspension slows risky bank lending

Capital markets

CRB suspension slows risky bank lending

A customer is served at a branch of the Kenya Commercial Bank. FILE PHOTO | NMG

Banks have been slow to extend loans to individuals and small businesses based on their risk profiles, citing their inability to assess their creditworthiness.

Nearly half of the institutions have received approval from the Central Bank of Kenya (CBK) to introduce risk-based lending, where riskier borrowers can get loans but at relatively higher interest rates. students.

A directive suspending the reporting of defaults on loans below 5 million shillings has hampered the roll-out of the differentiated lending framework on mass market loans due to the inability to use the credit reporting system.

“Our main concern has been how to manage the risk profiles of our clients when we are caught off guard by the lack of additional non-banking data,” said Mr. Chiera Waithaka, Chief Risk Officer at Absa Bank Kenya at the launch. of the report on the state of the banking sector 2022.

The report was published by the Kenya Bankers Association (KBA).

The industry average lending rate stood at 12.22% in May, a marginal move that signals slow lending to riskier customers who would be charged higher interest.

Lenders say they lack all the supporting data needed to accurately estimate a customer’s risk profile and know a bank’s level of exposure.

President Uhuru Kenyatta announced in September last year the moratorium on negative listing of borrowers with loans below 5 million shillings by Credit Reference Bureaus (CRBs) for one year, reducing information sharing on credit in the banking sector.

The directive came into effect in October last year and is due to expire on September 30.

The suspension of the list of defaulting debtors was part of the measures aimed at cushioning borrowers affected by the Covid-19 pandemic.

The directive, while protecting current defaulters, has slowed lending, especially for individuals and small businesses which are considered riskier than larger businesses.

More banks are now free to charge higher rates on loans to riskier borrowers and await the resumption of unrestricted credit reports to better assess the creditworthiness of specific customers.

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