Equity defies expensive lender-tag to grow loans to Ksh.297.2B


equity bank building

In Summary

  • The lender was only second to KCB Group who grew their net loans by 8 percent to Ksh.455.9 billion and beat both the Cooperative and Standard Chartered banks.
  • An issue of Ksh.1 million on an unsecured loan facility will for instance incur credit costs totalling Ksh.126057 a sector high when compared with the lower total cost of credit for a similar advance at KCB and Cooperative Bank which costs Ksh.107445 and Ksh.101849 respectively.
  • In spite of the continued hold of banks’ interest earnings through amendments to the Banking Act in at 4 percent above the prevailing Central Bank Rate (CBR), the total cost of credit among lender’s have continued to differ given additional cost to loan servicing in the form of legal fees, insurance, stamp duty and even third party costs.

Equity bank has defied its expensive lender-tag to grow its share of loans and advances by 6% to Ksh.297.2 billion to equal and surpass the average loan-book growth by its peers in tier one lending for the year ending December 31, 2019.

The lender was only second to KCB Group who grew their net loans by 8% to Ksh.455.9 billion and beat both the Cooperative and Standard Chartered banks.

Co-op Bank and Stan-Chart recorded a lower surge in customer lending where the latter saw its share of loans slump by 3.7 percent to Ksh.13.1 billion for the year.

Equity Group Managing Director James Mwangi attributed the growth in loans on the back of increased loan serving costs on customers as a playout of the convenience and the accommodation of more risky borrowers.

“Equity has gone deep to pick the high-risk borrowers but for the payment of additional fees. We have also delivered most of our loans through mobile channels where the peak time for lending from our data is 5 in the morning. This is convenience,” he said.

In spite of the continued hold of banks’ interest earnings through amendments to the Banking Act at 4% above the prevailing Central Bank Rate (CBR), the total cost of credit among lenders’ have continued to differ given additional costs to loan servicing in the form of legal fees, insurance, stamp duty and even third party costs.

Equity still remains the most expensive lender from an analysis of the cost of credit website by the Kenya Bankers Association (KBA).

An issue of Ksh.1 million on an unsecured loan facility will for instance incur credit costs totalling Ksh.126057 a sector high when compared with the lower total cost of credit for a similar advance at KCB and Cooperative Bank which costs Ksh.107445 and Ksh.101849 respectively.

The lender is backing innovation and digitization to continue to continue reaping benefits on the loan advancement front as more transactions move variable cost channels.

As of December 31, 2019, transactions in mobile, application and agency banking accounted for 93% of all the banking activities at 611.4 million differentiated deals with a total value of Ksh.1.8 trillion to close in on ATM and branch transactions at Ksh.2.5 trillion.

The bank is hopeful of pushing more funds into the real economy welcoming the latest high court ruling which deemed the stay on interest caps as unconstitutional given the law’s contravention of the freedom of contracting in business.

“The character to pay is the biggest element to loan pricing and when that is vouched by a sovereign entity, matters get complicated. We are keen to free up capital to crucial economic sectors and should double up the issuance of loans should the caps be repealed,” Equity Bank Kenya Limited Managing Director Polycarp Igathe said.

A walk back on the interest capping law however lies primarily on the hands of parliamentarians who can further leverage on the granted 12-month grace period to align the capping law with the constitution.

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