Good news for loan defaulters as CBK announces freeze on CRB listing
Auctioneers carry away the property of a loan defaulter. The suspension of CRB listings was initially announced by President Uhuru Kenyatta on Mashujaa Day.
The Central Bank of Kenya (CBK) has officially announced suspension of listing of individuals and businesses owing Sh5 million and below on Credit Reference Bureaus (CRBs) for a year.
This follows publication of a legal notice last week by National Treasury Cabinet Secretary Ukur Yatani that barred listing of negative credit information on borrowers until September 30 next year.
The suspension was initially announced by President Uhuru Kenyatta during his Mashujaa Day speech last month.
The President said the move will enable cash-strapped businesses that have been struggling to service their debt due to the effects of the Covid-19 pandemic access credit to revive their operations.
CBK said that borrowers with loans below Sh5 million that had fallen into arrears between October 1 last year and September 30 this year will also not be negatively listed on the CRBs.
“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 CRBs. Further, 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,” CBK said on Monday.
The listing freeze comes a year after the government ended a similar moratorium on lenders between April 1 and September 30 last year to cushion borrowers from effects of the Covid-19 pandemic.
However, CBK acknowledged concerns that the cost of the freeze could outweigh the benefits by forcing lenders to mitigate their credit risk through restrictive and selective lending as happened when the government placed a cap on interest rates.
“The suspension could adversely impact the provision of credit by banks to the target group, as they will be unable to distinguish between the good and bad borrowers during the suspension period. This could lead to rationing of credit, as was evident during the period of interest rate caps from 2016-2019,” it warned.
President Kenyatta in August 2016 signed into law the Banking (Amendment) Act, 2016 that set the maximum lending rate at a maximum of 4 per cent above the Central Bank base rate.
While it was expected to ease pain of high credit cost for borrowers, banks shifted their attention from risky borrowers and instead focused their attention on government securities, restricting credit flow especially to the private sector.
The cap on interest rates was lifted in 2019 following pressure from banks, borrowers and lawmakers.
