Equity of Kenya Has 100 Billion Shillings to Double Loans

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  • Lender plans to double corporate, SME lending over three years
  • Bank has introduced new saving products to protect deposits

Equity Group Holdings Ltd., Kenya’s biggest lender by market value, has as much as 100 billion shillings ($987.5 million) available for additional lending as it seeks to double business loans over the next three years, its directors said.

With about 50 percent of the bank’s highest quality assets as a proportion of its cash outflows available, the lender has more than enough liquidity on hand for more loans, Chief Executive Officer James Mwangi told reporters at a briefing in the capital, Nairobi.

“At that liquidity, we can be able to set aside before the year-end, up to 100 billion shillings for additional lending,” he said.

Banks in East Africa’s biggest economy have warned that new limits that came into effect on Wednesday risk drying up credit in the $61 billion economy. Lenders are now required to price their commercial loans at no more than 400 basis above the prevailing benchmark Central Bank Rate, currently at 10.5 percent. The law also compels financial institutions to pay interest of at least 70 percent of the so-called CBR on deposits.

Equity’s share have dropped 31 percent to 25.50 shillings since President Uhuru Kenyatta approved the law on Aug. 24. The nation’s biggest lender by assets, KCB Group Ltd., is down 16 percent to 27.50 shillings.

Equity plans to double the amount of credit it provides to companies and small- and medium-sized enterprises over the next three years, Rohit Singh, the group’s executive-director for that market segment, said at the briefing.

Retail Deposits

The bank said last month it would shrink consumer lending to 15 percent of its loan book from between 35 percent and 40 percent three years ago, and focus instead on small- and medium-sized enterprises. Its net customer loans increased 26 percent to 269.9 billion shillings in 2015.

Equity earlier on Wednesday introduced four fixed-deposit savings products as it seeks to protect a retail-client base that has traditionally funded the lender, according to Maurice Oduor, an investment manager at Nairobi-based Cytonn Investments.

To circumnavigate higher deposit rates, Kenyan lenders have been converting savings accounts into transaction accounts to control funding costs, according to Oduor.

“We have seen this before, we saw it in the 90s,” Mwangi said, referring to banks reducing their funding from customer deposits. “When times are hard you close branches, you increase minimum balance. That’s a strategic mistake (by other banks) that created Equity Bank.”