The worth of land and property that Equity Group is holding as collateral for loans has crossed the Sh1 trillion mark for the first time, underlining the use of plots as security for debt.
The lender disclosed that it held Sh1.15 trillion as loan security as of December, up from Sh638 billion the previous year, reflecting an 80.2 percent increase.
Land and property accounted for 82 percent of Equity’s Sh1.4 trillion in collateral, with car logbooks, household goods, and savings worth Sh250 billion, as well as shares worth Sh226 million, being used to secure loans.
This shows that banks are yet to adopt intangible assets such as cash flows, patents and trademarks as collateral for loans in a market that has locked out those without assets from tapping bank loans.
NCBA Group has property security of Sh334 billion or 67 percent of its Sh498 billion security.
Co-operative Bank had land and property collateral worth Sh317 billion of its Sh654 billion securities, representing a 48 percent share.
This underlines the dominance of land and property as the premier security for bank loans, given its ease to seize and auction as part of the recovery of defaulted loans.
Besides land and homes, the car logbooks and shares of quoted companies form the bulk of securities under auctioneers for defaulted loans.
Kenya’s slowing economy sparked repossessions, creating a growing pool of distressed borrowers whose assets are being seized by newly aggressive lenders
Cooperative bank had logbooks worth Sh66 billion that were used to tap bank loans, while NCBA held vehicles valued at Sh56 billion as collateral.
The increased use of assets for bank loans has also partly fueled the proliferation of lenders using technology and mobile money systems to extend credit to the banked and unbanked alike without collateral, saddling borrowers with high interest rates.
Analysts reckon that banks have increased their preference for tangible assets in an economic settings where loan defaults have spiked.
“It has been the tradition for banks to have a bias for land because of two aspects; one it has continuously been appreciating and it is an immovable asset unlike other forms of collateral which can be relocated,” said Ken Gichinga, chief economist, Mentoria Economics.
“The heavy reliance on collateral shows a lack of sophistication in our market. If you think of startups and innovators, they will tell you they can’t go to banks because they don’t have collateral.
It shows there is no innovation to discover new forms of collateral so it denies an important part of the economy credit. There is also a gender bias to it because there is an unproportionate holding of land by men than women,” he added.
An earlier survey indicated that less than 2 percent of title deeds issued in Kenya since 2013 went to women, dashing hopes raised by constitutional reform granting them equal property rights.
Campaigners say women's land ownership is key to reducing poverty and exposure to domestic violence, as well as providing collateral for loans and security in old age.
From having had little or no access to credit, many Kenyans now find they can get loans in minutes from fintech startups, notably from the US.
Some of the fintech lenders are expanding into other African countries and into Latin America and Asia, saying they aim to help some of the billions of people who lack bank accounts, assets or formal employment climb the economic ladder.
African Guarantee Fund and Africa Trade Insurance are among firms that are supporting borrowers without tangible security but have healthy cash flows for loans repayments.
Banks discount assets issued as collateral at different rates.
The rate at which land is discounted is dependent on locality, but often covers 70 percent of the loan size in the event of forced sale.
Property can be shared as collateral among banks if a borrower has loans with different banks.
Logbooks are used to cover up to 70 percent of debt, while the more volatile shares cover 50 percent of value.
Household goods such as television sets, fridges and sofa sets are accepted as security for short-term loans.
The business registration service revealed last month that 291,099 pieces of household items had been used to secure loans since July 2021.
KCB Group, which is the country’s largest lender by capital base, had securities valued at Sh2.5 trillion. KCB did not have a breakdown of the assets it had accepted as securities.
The collateral was more than double its loan book, which stood at Sh1.07 trillion as at the end of 2024.
