February 14, 2020 / 3:12 PM / 6 months ago

Kenya's KCB sees loan growth tripling to 15% after rate cap repeal

NAIROBI (Reuters) - Kenya’s biggest lender by assets, KCB Group, expects its loan growth to triple to 15% this year after a cap on lending rates was repealed, its chief executive said on Friday.

Customers are seen outside the banking hall at the Kenya Commercial Bank (KCB), Kencom branch in Nairobi, Kenya July 10, 2018. REUTERS/Thomas Mukoya/File Photo

The government removed the cap last November after it was blamed for curbing credit growth during its three years of existence.

“We see strong opportunities to grow,” Joshua Oigara told Reuters at an interview in his office, adding that the group’s annual loan growth had slowed to 5% during the cap.

KCB, which also operates in neighbouring Uganda, Tanzania, Rwanda, Burundi and South Sudan, expects to set a base lending rate at the start of March, which will allow it to offer varying rates to customers.

Banks use a base rate that is normally the cost of funds, plus a margin and a risk premium, to determine how much they should charge a particular customer.

The cap, which set rates at 4 percentage points above the central bank’s benchmark lending for all customers, had taken out that equation and the flexibility that lenders say they need in order to accommodate customers deemed as risky borrowers.

“What will change is the price premium based on the customer’s risk profile. That generally could increase the prices of credit in the market,” Oigara said.

Together with delays in government payments to its suppliers, the cap had led to an acute slowdown in economic activity, with many people complaining of hardships and lack of cash.

Oigara said that has started to change slowly after the government ordered its ministries, agencies, departments and local authorities to pay up pending bills last year.

“Liquidity has come back to the market since they started paying last year. There is strong cash flow for businesses now,” he said.

“They have been paid their pending bills. They are going back to the market. They are going to pay their suppliers, buying goods.”

KCB injected 5 billion shillings ($49.73 million) into National Bank of Kenya (NBK) last month after acquiring it last September in a 1-for-10 share swap deal.

Oigara said the bank had also put experienced executives in charge of the critical functions of NBK, to turn it around within the next three years, after which it is required to run it as a separate bank.

NBK accounts for a 10th of KCB’s assets, contributing less than 1% to the group’s profit, but Oigara said it wanted to boost the profit contribution to 20% of the group’s total.

“If they (NBK) make a strong contribution to the group, we have no problem with them remaining as they are,” he said.

($1 = 100.5500 Kenyan shillings)

Editing by Alex Richardson

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