Banks to list directors of defaulting companies in CRBs

The names of directors and key shareholders of companies taking out commercial loans will be submitted to credit reference bureaus (CRBs) under new rules intended to rate the firms’ ability to repay debts. FILE PHOTO | NMG 

By OTIATO GUGUYU
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Summary

• Names of individuals who hold at least 10 percent in a company seeking loans will also be listed with CRBs
• The new requirement comes on the back of multiple credit defaults by companies.
• Consolidated Bank, Athi River Mining and Nakumatt are some of the most recent defaulters of billions of shillings

The names of directors and key shareholders of companies taking out commercial loans will be submitted to credit reference bureaus (CRBs) under new rules intended to rate the firms’ ability to repay debts.

A new template to be filled by lenders wants to link top shareholders, directors, partners and trustees of corporate borrowers to establish the identity of owners and assist in conducting due diligence on companies.

Names of individuals who hold at least 10 percent in a company seeking loans will also be listed with CRBs in addition to directors, partners, trustees and officials of the firms.

Disclosure of the names will effectively lift the veil of incorporation, a key tenet that has been applied over time to separate ownership of limited companies from their liabilities and day-to-day management.

“In the case of non-natural persons like companies, the information of the directors is shared to the bureau so that the lenders can know the level of indirect exposure they have,” said Jared Getenga, chief executive of the industry lobby Credit Information Sharing Association of Kenya.

Greater value

The Central Bank of Kenya (CBK) says the information will help in risk assessment for non-individual borrowers, but is more likely to have greater value in establishing their identity.

The new requirement comes on the back of multiple credit defaults by companies.

Consolidated Bank, Athi River Mining and Nakumatt are some of the most recent defaulters of billions of shillings in bank loans and corporate bonds.

Other firms that are in trouble with lenders are Uchumi and Real People, which are seeking to renegotiate their loans.

The new CRB template will also link borrowing details to employment records as the lenders seek to have a clearer picture of borrowers.

To develop a more comprehensive profile of an individual’s credit risk profile, CBK says it is necessary to connect individuals to their accounts held by different credit providers using various identifying features, such as name, national identification number, address, tax identification number, employer information.

Employment data will be used for matching (or establishing identity) and for risk assessment.

Type of employment

Type of employment and gross monthly income will assist in establishing the ability of a borrower to afford a loan.

“The law is clear on what should be shared with the CRB; that is a customer’s identification details, their credit status, their securities and details of payment of credit facilities.

Employment information and income are shared to assist the lender to determine the ability of the borrower to repay the facility,” Mr Getenga said.

In a circular issued in May 2019, CBK ordered banks, microfinance and credit bureaus to apply the new template that will also include daily updates of information.

The new template will require submission of data to be made by midnight every day.

These submissions will relate to transactions that have occurred during that day; as well as any demographic data and credit information rectifications.

Daniel Szlapak, head of Global Operations at Branch International, says Safaricom’s know-your-customer details would also be important in weeding out fraudulent mobile money accounts.

“When this is released, the lending industry and Kenyan industry more broadly, will be in a much stronger position,” he said in an interview.