Table of Contents
Key Points
- Court upholds Equity Bank’s right to auction 30 vehicles from Paddy Kenya to recover a $2.34 million loan, rejecting claims that prior asset sales settled the debt.
- Paddy Kenya’s repayment capacity collapsed amid COVID-19, after failing to prove its North Airport Road property was worth $1.93 million.
- Equity Bank advances recovery as defaults surge, with collateral holdings rising 80% to $8.9 billion, reflecting stricter lender action across Kenya’s banking sector.
A Kenyan court has granted Equity Bank, the flagship banking subsidiary of Equity Group, led by Group CEO James Mwangi, the authority to auction a fleet of 30 motor vehicles belonging to Nairobi businessman Patrick Nthiga Mvungu, marking a decisive step in recovering an outstanding $2.34 million loan issued to his trading firm, Paddy Kenya.
The decision deals a significant blow to the financially distressed trading firm owned by Nairobi businessman Mvungu, as business disruptions eroded cash flows and derailed restructuring plans.
Borrower’s settlement claim dismissed as court upholds lender’s rights
The High Court dismissed Paddy Kenya’s argument that the partial sale of secured property in 2022 constituted a full settlement of the debt. Justice B.M. Musyoki ruled that the borrower failed to provide evidence supporting this claim, affirming that the repayment obligations remained binding despite the sale proceeds.
The dispute traces back to an August 2017 credit facility in which Paddy Kenya borrowed Ksh120 million ($1 million), secured by prime property along North Airport Road and additional collateral, including trucks and prime movers. Over time, the debt expanded through restructuring agreements, further advances, and accrued interest, ballooning to Ksh395 million ($3.06 million) before the partial disposal of the property reduced the outstanding balance.
Equity Bank maintained that the Ksh100 million ($773,788) realized from the property sale was insufficient to extinguish the liability, and the court sided with the lender, awarding judgment for Ksh302.2 million ($2.34 million) plus interest at 13 percent per annum until full repayment.
Pandemic-era cash crunch worsens borrower’s position
Paddy Kenya’s repayment capacity deteriorated sharply during the COVID-19 pandemic, as business disruptions eroded cash flows and derailed restructuring plans. While the firm asserted the North Airport Road property was worth up to Ksh250 million ($1.93 million), it failed to provide updated valuations to back the claim.
This cash crunch, combined with mounting interest obligations, left the company heavily exposed to enforcement action once Equity declined further concessions. Justice Musyoki underscored that borrowers remain obligated to settle debts in full, regardless of partial recoveries from collateral sales, reinforcing the enforceability of loan securities.
Equity Bank advances recovery efforts amid sector-wide defaults
Equity Group’s collateral portfolio surged to Ksh1.15 trillion ($8.9 billion) as of December 2024 for the first time—an 80.2 percent increase year-on-year—reflecting widespread asset seizures as lenders pursue recoveries.
Despite its robust asset base and continued market dominance, Equity Group’s net profit dipped 4.24 percent to $119.2 million, as muted income growth and currency devaluation in hyperinflationary markets weighed on earnings. Under Mwangi’s stewardship, the bank has maintained strong fundamentals, with total assets rising to Ksh1.75 trillion ($13.54 billion) and retained earnings climbing nearly 12 percent.
The High Court’s ruling clears the way for Equity Bank to proceed with auctioning the vehicles to recover the remaining debt, dealing a setback to Paddy Kenya and its directors. The judgment underscores the rising tide of non-performing loans across Kenya’s banking sector.
