The Kenya Development Corporation (KDC) has moved to allay concerns regarding its financial health after revelations that it is writing off a significant portion of its debt. The corporation, which inherited a substantial legacy loan portfolio from its predecessors, including Industrial and Commercial Development Corporation (ICDC), Tourism Finance Corporation (TFC), and IDB Capital, has clarified that the Sh33.4 billion bad debt reported by the Auditor General is largely historical and linked to loans issued decades ago.
In a statement, KDC explained that the bad debt stems from a legacy loan portfolio that accumulated over time due to penalties and interest. The initial loan amount of Sh1.36 billion, disbursed to empower entrepreneurs between 1965 and 2008, had ballooned to Sh31.8 billion due to the accrual of interest and penalties amounting to Sh30.45 billion. Many of the borrowers are long deceased, and the securities, mostly ancestral lands, are either missing or irredeemable.
Despite the growing debt, KDC reassured stakeholders that it is adhering to financial best practices. The corporation has stopped accruing interest on the legacy loans since March 2022, in compliance with the “in duplum rule” set out in the Banking Act, which caps the interest on non-performing loans to the principal amount. Additionally, the full provision for the losses has been made in accordance with International Financial Reporting Standard No.9.
While KDC’s legacy loan portfolio remains a concern, its active loan book, which includes 171 loan accounts with a total outstanding amount of Sh7.1 billion, is showing improvement. The corporation has made strides in reducing its Portfolio at Risk from 78% at the time of merger to 50.30% by the end of FY 2023-24. This reduction reflects KDC’s strengthened credit appraisal system and enhanced monitoring efforts.
KDC’s leadership emphasized its commitment to financial sustainability, urging stakeholders to focus on its ongoing efforts to restructure the legacy portfolio and the positive outlook of its active loans portfolio.
