Banks Benefit as Auto Buyers Swarm Auction Yards

Kenyans who are turned off by a dramatic increase in automobile import costs as a result of a severely depreciated shilling are swarming to banks’ auction yards in search of cheaper models seized from loan defaulters, giving lenders trying to collect their debt a boost.

Due to the weak shilling and new taxes, used automobile costs have increased. As a result, sales at auction centers are closing faster as buyers race to take advantage of savings of up to 25%.

The market prices of vehicles like the Land Cruiser V8, Mercedes Benz C-Class, Subaru Outback, Nissan X-Trail, Mazda Demio (Petrol), and Toyota Vitz have grown by about 50% since January, according to auctioneers and bankers, which has led to an increase in demand for used automobiles.

“The vehicle market is doing much better for repossessed vehicles attached for debt compared with immovable property. This has to do with the value,” says Joseph Gikonyo, the proprietor and manager at Garam Investments which has been in business since 1994.

“People are holding onto their vehicles longer due to the rising prices and so there is demand for vehicles being sold through auction. If you are looking for a vehicle and go to the open market, the prices being quoted are ridiculously high so you are bound to end up in an auction where you will get a bargain.”

Contrary to immovable properties like residential homes, land, and industrial structures, where auctioneers claim they are not finding purchasers as quickly as banks are repossessing, there has been a rise in the number of car purchases at auction centers.

In a situation when borrower defaults are on the rise, which is a reflection of the difficulties faced by households, increased vehicle auction deals present a win for banks.

Top banks, including KCB, Co-operative Bank of Kenya, and NCBA, auctioned off 113 vehicles this week in an effort to capitalize on the rise in demand. The aggregate reserve price for the car was Sh339.9 million, which is typically 75% of the market value.

While Co-op has put for sale 47 automobiles with a combined value of Sh126.1 million, NCBA is auctioning 38 vehicles valued at Sh126.68 million. From the sale of 28 vehicles, KCB hopes to raise Sh81.16 million.

“Cars are moving and we are finding better performance on auctions these days than historically. Imported cars have become very expensive and so auction cars have become quite attractive,” said John Gachora, chief executive at NCBA Group who also chairs the Kenya Bankers Association.