Kenya’s leading bank by customer size Equity Bank has announced its plans to stop giving unsecured and micro loans in a bid to cushion its profit jar from loan losses.
This implies that salaried workers and owners of small businesses are nearing tough times.
Equity said in a Tuesday statement that announced it is cutting down unsecured and micro loans in a bid to comply with a new set of global accounting rules on loan loss covers.
Business Daily reports that the group’s chief executive James Mwangi said unsecured and small business loans are deemed risky would be out of their focus ahead of the coming into force of the new guidelines, known as International Financial Reporting Standard (IFRS) 9.
The new guidelines are meant to come into force on January 1, 2018.
IFRS 9 standards require banks to make higher loan loss provisions to withstand any possible shocks.
However, bankers deem such a move unprofitable under the current interest rate capping regime that has narrowed lending margins.
Mr. Mwangi said: “We are moving away from unsecured lending. IFRS 9 requires you to use historical ratio to make provisions at point of booking the loan. This is not sustainable with a margin of seven per cent.”
He attributed the change in strategy to the 25.6 per cent decrease in the size of the group’s micro-enterprises loan book to Sh11.6 billion in the half-year period to June 2017 compared to Sh15.6 billion in a similar period last year.
Equity announced a 7.4 drop in net profit.