NBK targets Sh22 billion asset auctions over unpaid loans

The National Bank of Kenya (NBK) has announced mass property auctions in a fresh bid to recover Sh22 billion owed by 30 borrowers.

The bank said it has hired top lawyers to pursue the outstanding loans, marking its first step in reducing non-performing loans (NPLs) just weeks after KCB Group sealed the purchase of NBK in a share swap deal.

The defaulted loans are equivalent to 68.7 percent of the Sh32 billion gross non-performing loans on NBK books as at the end of September.

Paul Russo, the NBK managing director who was tapped from KCB to oversee the integration, said the bank will hire “hardcore lawyers” to pursue intentional defaulters and clean up the loan mess that was brought by weak oversight.

“I have a view of every single detail of these top NPLs and I discuss it two hours per day to know the progress of each of them. We are putting maximum effort where there is maximum value,” said Mr Russo in an interview with the Business Daily.

“There are those willing to come to the table, those we are going after their security and those who we are pursuing over and above through courts. You can’t rule out that there are people who take loans with no intention of repaying.”

The move will lead to a mass sale of properties like land, homes, cars and office blocks in an economy where banks have stepped up debt recovery, leading to a sharp rise in property seizures by aggressive lenders.

The bank’s NPLs ratio – a share of bad debts compared to total loans — stood at 68.8 percent in the nine months ended September compared to 47 percent in December last year. This is more than five times the banking industry’s ratio of 12.8 percent, reflecting the problem of bad loans at NBK.= NBK is also combing through old records to mine and review the stock of old loans that were written off in an evaluation that is likely to unearth more defaulters, especially those who borrowed unsecured loans. The bank has hired audit and consultancy firm PricewaterhouseCoopers (PwC) for the assignment and it is expected to issue a preliminary report in three weeks.

“We want to mine the written-off book and go as far back as possible in the recoveries. If we find any evidence of wrongdoing by any individual, including staff, we will take action,” said Mr Russo. A special focus will be on the period between 2013 and 2015, which coincides with the tenure of former CEO Munir Mohamed who was removed in March 2017 over the treatment of bad loans. Mr Mohamed and five top managers were removed after the bank said its portfolio of non-performing loans had increased towards the end of 2015, leading to a sharp increase in the level of impairment charges it was facing. Mr Russo said NBK has reviewed the operations of its credit office to manage bad debts, including separating the functions of appraising loans, approving credit limit and finally issuing the advances.

The aggressive pursuit of the bad debts comes after KCB announced that NBK would continue to operate as a stand-alone subsidiary, a departure from an earlier plan of integrating the operations of the two banks within two years.

NBK’s net profit rose 18.5 times to Sh407 million in the nine months to September on the back of higher interest income and lower expenses.