State-owned KDC to review interest on 1960s bad loans
A State-owned development financier is seeking to write off interest and penalties on defaulted loans tapped as far back as the 1960s that have ballooned to over Sh31 billion.
The Kenya Development Corporation wants to apply the in-duplum rule, which provides that interest on a loan stops accumulating when it equals the principal, according to a management report seen by the Daily Nation.
This means that interest on loans of Sh1.36 billion borrowed between 1965 and 2008 will not rise beyond the principal as part of efforts to clean the financier’s balance sheet.
Presently, interest and penalties on the defaulted loans of Sh511.3 million have ballooned to Sh30.45 billion, pushing the unpaid loans to Sh31.8 billion.
“KDC is in the final stages of restructuring the legacy loan portfolio in compliance with the in-duplum rule, as set out in section 44 of the banking Act and as enforced by various courts,” said the management report.
KDC inherited the legacy loans from the Industrial and Commercial Development Corporation (ICDC), which was set up after Kenya’s independence to provide long-term financing to businesses, especially micro, small, and medium enterprises.
The ICDC loans were fully provided for and KDC is seeking to write off part of interest and penalties.
Sh3.5 billion
The ICDC, Tourism Finance Corporation (TFC) and Industrial Development Bank Capital Ltd were merged in 2021 to form KDC.
KDC has lent Sh3.5 billion to businesses since 2021, pushing its active loan book to Sh7 billion, including those inherited from the three merged DFIs amid efforts to cut defaults.
“The overall portfolio at risk has greatly decreased from what it was during the merger at 78 percent to 50.3 percent,” said the management report.
The firm has also steeped loan recoveries and enhanced credit appraisals, seeking to cut its share of non-performing loans to 15 percent within two years.
This will cut the share of bad loans to under the present banking industry average of 16.1 percent.
A soft economy has triggered job losses and cash flow crunch in firms, which, together with high lending rates, have caused hardship for borrowers in Kenya’s banking industry and increased loan defaults.
KDC is seeking partner banks to lend billions of shillings to small and medium businesses to help create employment and cut poverty in an economy that is not providing adequate formal jobs
It plans to advance up to Sh500 million per bank for onward lending, riding on funds mobilised from various sources, including the World Bank.
