Banks hawking properties to auctioneers amid buyer dryspell
A cursory look at leading newspaper classifieds in Kenya gives the impression that auctioneers have taken over all the advertising space in print media with almost half of the Monday paper, up to 15 pages, littered with images and descriptions of assets on fire sale.
One would think the classifieds only point to the increase in the number Kenyans losing property but industry players say most of it is re-advertisements of properties that have refused to sell due to the difficulty in finding buyers under the current economic crunch.
Mr Joseph Gikonyo of Garam Auctioneers says lenders are having a harder time recovering their investments from defaulting borrowers because fewer people are interested in property purchases.
“When you see papers flooding with [auction] ads, it’s just a desperate attempt by the bank to recover their money. They try selling a property with this auctioneer, next time with another. If they try hard enough, they might get a buyer,” he explained.
From Mr Gikonyo’s vantage point, he has witnessed firsthand as auctioneers struggle to make sales and properties piling on their yards.
The seasoned auctioneer says his own company has seen a decline in hit rates from 80 percent to a mere 30 percent in recent months ratcheting up the cost of realizing a charge on the property.
“Gone are the days we used to sell between 80 and 100 percent,” he said.
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Following Russia’s invasion of Ukraine in late February last year, just as the economy was recovering from the ravages of Covid-19 pandemic, the media in Kenya (and the world at large) has been preoccupied with economic doomsaying.
The news cycle has been dominated by themes such as high inflation, prolonged drought and food insecurity, faltering growth, global supply chain disruptions, depreciation of local currency, high cost of living, elections-related political uncertainty, and everything awful in between.
Corroborating stories about weak consumer spending as exemplified in tanking new car sales and three million Kenya Power customers loading up with less than 10 electricity units monthly have only propagated the negative narrative.
But could the ubiquity of auction listings be a pointer to deeper signs of economic disrepair and higher rates of debt default in Kenya?
The ratcheted prevalence of Kenyans parting with their properties is causally or correlationally tied to their incapacity to settle loans when they fall due, which leads banks to enlist auctioneers to recoup investments on their behalf.
Latest Central Bank of Kenya data noted that aggressive loan recoveries through attachment and auctions have helped bring down bankers exposure to loan defaulters from an non-performing loan ratio of 13.8 percent in October to 13.3 percent in December.
“The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.3 percent in December 2022, compared to 13.8 percent in October. Repayments and recoveries were noted in the trade, tourism, restaurant and hotels, transport and communication and manufacturing sectors,” CBK Governor Patrick Njoroge said in the January Monetary Policy Committee briefing.
On the ground, however, the struggle is real and banks are more than willing to accept to re-negotiate with borrowers, and revise terms and in some cases return property that has been placed on auction to their owners because of lack of buyers in the market.
The return of aluminum ware manufacturer Kalu Works back to Comcraft Group in August 2022 exemplifies the hurdles banks have to surmount to get buyers for assets seized over defaulted loans.
Cooperative Bank and NCBA Bank initially took over the company to recover a multi-billion debt, but the financial institutions could not attract a deep-pocketed buyer.
The alternative was to sink another Kes750 million to revive the plant which was unpractical. In the end, the banks reached a compromise in which Kalu Works shareholders agreed to payoff a small fraction of the money owed in exchange for reinstating the plant to Comcraft Group.