Kenya’s biggest lender by assets, KCB Group, has forecast a 15% growth in its loan to clients this year owing to the removal of a cap on lending rates, according to its chief executive, Joshua Oigara on Friday.
The government removed the cap last November after it was blamed for curbing credit growth during its three years of existence.
KCB, 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 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 sets rates at 4% 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.
According to Oigara, a change in the price of premium based on the customer’s risk profile could generally increase the prices of credit in the market.
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 further says that things are changing slowly after the government ordered its ministries, agencies, departments and local authorities to pay up pending bills last year.
The banker affirmed that this has led to an increase in liquidity in the market. And ensured available cash flows for businesses.
Merger and Acquisition
KCB injected 5 billion Kenyan shillings or $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 that 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.
KCB also operates in neighbouring Uganda, Tanzania, Rwanda, Burundi and South Sudan,