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Borrowers defaulting on loans of less than Sh5 million will not be blacklisted at the credit reference bureaus (CRBs) while those already blacklisted will be dropped in a bid to cushion businesses recovering from Covid-19 hardships.
This is after the Central Bank of Kenya (CBK) on Monday moved to implement President Uhuru Kenyatta’s order on suspending the listings.
President Kenyatta announced last month the suspension of CRB listing for loans that were defaulted from last October with the relief from blacklisting set to last to September next year with a view of cushioning borrowers hit hard by Covid 19 economic shocks.
“The CBK announces the suspension for a period of twelve months, of the listing of negative credit information for borrowers with loans below Sh5 million, whose loans were performing previously, but have become non-performing from October 1, 2021,” the regulator announced on Monday.
“Consequently, loans below Sh5 million that fall in arrears from October 1, 2021, to September 30, 2022, will not lead to the “blacklisting” of the borrower on the Credit Reference Bureaus (CRBs).”
The CBK said CRBs will not include in any credit report, any negative credit information for loans of a customer less than Sh5 million submitted to the CRB from October 1, 2020, to September 30, 2021, for a period of 12 months from October 1, 2021, to September 30, 2022.
The CRB listing relief is part of a stimulus package to cushion distressed businesses and families from the effects of the Covid-19 pandemic, which have hit consumer demand and forced businesses to shed jobs and cut back their operations.
Borrowers reported to one of Kenya’s three credit bureaux jeopardise their chances of being able to borrow more.
“The relevant authorities will, for loans less than Sh5 million, effect a moratorium of listing in CRBs for a period of 12 months to end September 2022,” President Kenyatta had said.
Mr Kenyatta’s order was seen to slam the brake on banks, SACCOs and microfinance firms which have since June been allowed to resume free provision of negative credit information to the three CRBs.
Financiers have warned it may result in a slow down of private sector credit as banks become more risk-averse.
The suspension is the second since Kenya reported the first case of the Covid-19 disease last year as the State moves to protect households and businesses from being locked out of credit.
CBK had given a six-month suspension of CRB listings in April last year as part of the measures to cushion borrowers hit by the pandemic.
The moratorium lapsed in October, allowing financial institutions to start sending names of defaulters to the bureaus. Lenders, however, offered defaulters 90 days from October 1 to start repaying their loans or get listed with CRBs.
The suspension of negative listing on Kenya’s three CRBs — Metropol, TransUnion and Creditinfo International — was meant to cushion distressed borrowers from the effects of the coronavirus pandemic.
Workers who had tapped unsecured loans on the strength of their salaries to purchase goods such as furniture and cars and for expenses like school fees have struggled to keep up with repayments in the wake of retrenchments and pay cuts.
The number of loan accounts negatively listed with CRBs hit 14 million in January this year, underscoring the struggles Kenyans are having with repayments.
Blacklisted accounts jumped 45 percent in the five months between August and January after the CBK lifted a three-month listing moratorium.
Data from CRBs showed that the number of loans accounts in arrears for more than 90 days had jumped to 14,035,718 by January this year, up from 9,673,258 in August 2020.
The ratio of non-performing loans to total loans in the banking sector stood at 14 percent in June, down from 14.6 percent at the end of March, highlighting the economic recovery for households and businesses.
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