Banks blame losses from demolitions on gaps in land zoning

Residents watch as excavators bring down flats at Nyama Villa estate in Kayole, Nairobi on December 18, 2018. PHOTO | JEFF ANGOTE | NMG

Demolitions of buildings on riparian land and along wildlife migratory routes have exposed banks to losses and defaults running into billions.

A survey on environmental risk exposure to banks released by the Kenya Bankers Association (KBA), the industry lobby, said the demolitions of properties financed by banks and delays in court rulings has cost heavy losses to lenders and their clients.

Other businesses were shut and construction projects terminated due to air, noise pollution and public nuisances orders, further raising losses.

This has been attributed to gaps in environmental regulations, especially in riparian land zoning rules and overlap of mandates by government agencies.

The value of the loss to banks has not been disclosed, with KBA saying most of the demolitions have ongoing court cases.

“It is our collective responsibility to ensure the stability of the banking industry by encouraging sound risk assessment and management. By harmonising the spatial land use plans and the wildlife laws, we can reduce the financial risks to both banks and Kenyans,” said KBA chief executive Dr Habil Olaka.

In 2018, a series of properties were demolished by National Environment Management Authority (Nema) on claims that they were built near river bodies, a move that saw commercial and residential houses destroyed.

Some of the buildings affected included South End Mall on Langat road estimated to have cost Sh1 billion, a premise in Kileleshwa that hosted coffee chain Java House and oil marketer Vivo Energy and Taj Mall in Embakasi.

Businesses and households have been affected due to policies such as property damage, technological advancement, consumer preferences, legal liability and loss of income.

As a result, manufacturing (Sh471.8 billion), trade (Sh544 billion) and real estate (Sh412.4 billion) are the top sectors that may lead to defaults relating to environmental risk due to the high combined loan portfolio held by the banks at 44.7 percent as at April.

This also includes the personal and household sector with a Sh489.5 billion loan portfolio.

The banking sector lobby wants the government to adopt environmental regulations.

“The relationship between zoning guidelines under the Physical Planning laws and the Environment Regulations riparian rules are not well defined. The study revealed that land surveys and cadastral maps often do not demarcate expected riparian boundaries.

This has given way to real estate development being designed and constructed on riparian zones on the strengths of unmarked survey maps,” the report stated.

Other challenges that are putting banks and investors at risk include lack of Environmental Social Impact Assessments (ESIA) by Nema agents, especially regarding the quality of reports, ethics in undertaking the assessment and audits that lead to revocation of project licences and eventual defaults on loans granted on the strength of the licence issued by Nema.

The banking industry is expected to comply with global Environmental, Social and Governance (ESG) guidelines requiring companies to show how they deal with issues among them carbon emission, impact on wider society and environmental and corruption through their practices.

The is expected to complement KBA’s sustainable finance initiatives which train bank on the potential of green technologies, how to scale up green financing and lending to sustainable businesses.

[email protected]