Borrower scores improve in a year

Individual credit scores have strengthened despite concerns of elevated credit risks from rising interest rates in the past year.

According to data from Metropol Credit Reference Bureau, scores for individual borrowers standing above good or 500 to 900 points have climbed to 71 percent or 16.3 million profiles at the end of February 2024 from 63 percent at similar time last year.

Metropol, which is one of the credit reference bureaus, says it has 23 million individual/household profiles and 700,000 business profiles.

The company attributed the improved scores to reforms in credit information sharing that have seen financial institutions start sharing positive credit data with the bureaus.

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“We have run a campaign to get positive data to come to the profiles. Previously, institutions did not send the full file but only shared negative listing data. The market is now shifting to appreciate positive data which has helped in confronting the perception that the Kenyan borrower is high risk,” Metropol CEO Gideon Kipyakwai told Business Daily on Wednesday.

“Initially, people used to know that CRBs were the ones denying access to loans. Today, people are realising that they can get a facility because they have a CRB/credit score. The score is their collateral and they don’t need to produce a logbook.”

The Central Bank of Kenya (CBK) has provided impetus for the sharing of positive credit information by financial institutions including collaborations with CRBs to improve credit reports and credit scoring models.

The implementation of risk-based credit pricing has allowed different borrowers to be appropriately priced for credit, especially for clients perceived as high risk such as micro, small and medium enterprises.

The 2020 Banking (Credit Reference Bureau) Regulations have also boosted the credit-sharing ecosystem.

Key reforms introduced by the regulations include the setting of a minimum threshold of Sh1,000 for negative credit information that is submitted to CRBs by lenders while first-time CRB clearance certificates are free.

Improved credit sharing has seen consumer credit scores defy the jump in non-performing loans amid high-interest rates.

Also read: CBK hits borrowers with highest loan rate in 12 years

While the industry’s ratio of non-performing loans has eased off to 14.8 percent as of December from a high of 15.3 percent in October, the bad loans have remained elevated while interest rates on commercial bank lending rates have reached highs of up to 26 percent for the riskiest borrowers.

The demand for credit has, however, remained above double-digit rates supported largely by working capital requirements

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