EDITORIAL: Alternative debt recovery by banks is the way to go

The decision by commercial banks to opt for private settlement over forceful auction of loan defaulters’ property is welcome and should be encouraged.

Under the arrangement, distressed borrowers agree with banks to look for the best available price for their properties and sell to repay loans as opposed to relying on the auctioneer’s hammer.

The aggressive approach that saw lenders take over property and auction left other parties aggrieved, leaving a sour relationship between banks and customers.

The job cuts and the worsening business environment following measures put in place to curb the spread of Covid 19 has pushed firms and workers into default.

The slowdown in real estate is hurting property developers who are finding it difficult to sell houses that were built on mortgage loans. Small businesses hit by lower sales have been forced to close shop, with many of them defaulting on their loans.

In light of this, private arrangements with borrowers would give them the much-needed reprieve.

Lenders say private treaties help them retain relationship with customers as opposed to the animosity that comes with forced auctions.

It will also cut out unscrupulous auctioneers who take advantage of distressed borrowers and the lenders to sell seized property below market value.

In a story published yesterday, a bank executive intimated that auctioneers have not always been transparent in the bidding process. They rig bid prices to earn extra money, which puts the borrowers and banks at a loss.

In the past, property owners have accused auctioneers of conducting their trade against the law, leaving a trail of losses to desperate borrowers.

It is encouraging that financial institutions are embracing alternative ways of recovering debts. Auctions as a last resort deny borrowers a source of income as it kicks them out of business.

Lenders other than banks should emulate the goodwill and work to help individuals and companies back to their feet.