Nairobi — Serial loan defaulters are set for a rough landing in three days time when commercial banks tighten lending guidelines in order to control the level of non-performing portfolios.

This follows an initiative by the Central Bank of Kenya (CBK) and the Kenya Bankers Association (KBA) to introduce credit reference bureaus (CRBs) as a tool to gather and store information on borrowers' loans history.

The bureaus will help banks abandon the extensive reliance on physical assets as collateral whose values have at times, been questionable after default.

About a decade ago, greedy and un-coordinated borrowing by politicians and powerful businessmen left commercial banks weighed down by huge non-performing loans.

Many borrowed using ghost companies that made it difficult for banks and mortgage firms to trace their dealings, increasing the risk of default.

To ensure banks get relevant information concerning a client's credit background, Central Bank introduced the Banking (Credit Reference Bureau) Regulations 2008, which were published in July 2008 and became operational on February 2, 2009 with the licensing of the first credit reference bureau - CRB Africa in February 2010.

The regulations pave the way for licensing and surveillance of the bureaus by CBK.

They will collate credit information from institutions licensed under the Banking Act.

To avoid inconveniencies, banks and other lenders will have to rely on the data collected by the bureaus.

They will be in a position to tell the level of a client's income, how regularly they get it and how stable the source of the income is.

In general, going through the data provided by bureaus, any lender will know the credit capacity of the borrower.

During the official launch of the credit information sharing CBK governor Prof Njuguna Ndung'u said banks will be required to submit information on non-performing loans and other information sets as at July 31 to licensed CRBs by August 10, 2010.

Monthly updates will, thereafter, be submitted by the 10th day of the succeeding month.

Prof Ndung'u said the regulations provide for mandatory sharing by banks of information on various aspects including non-performing loans and positive information on performing loans and customer behaviour on repayment and history.

"Both sets of information will be used to access and negotiate competitive pricing for credit and also improve the plethora of financial services in the industry," he said.