NIC Bank Managing Director John Gachora. FILE PHOTO | NMG
NIC Group cut unsecured loans by a third to
Sh3.12 billion in the financial year ended December 2018, pointing to
tight access to credit since the onset of interest rate cap laws.
The
lender disclosed in the annual report that its exposure in unsecured
loans, usually approved based on credit history and income but no
collateral, dropped from Sh4.63 billion during the period under review.
“While
collateral is important mitigate to credit risk, the group’s
underwriting policy ensures that loans are strictly granted on a going
concern basis with upfront adequate demonstration of repayment
capacity,” the bank said.
The drop means more borrowers
were required to present collateral such as land or car to get loans,
as banks moved to control stock of non-performing loans.
The
onset of forward-looking International Financial Reporting Standard
(IFRS) 9 saw banks put stricter measures in advancing loans. NIC said
the fair value of collateral held for impaired loans and advances rose
by 22.7 percent to Sh8.75 billion from Sh7.13 billion in the previous
year. During the period, non-performing loans (NPLs) rose by 17.5
percent from Sh14.3 billion to Sh16.8 billion.
“The rise in NPLs is occasioned by a few delinquent customers
causing a decline of the credit quality of the book. We have intensified
our remedial and recovery efforts,” said NIC in the report.
The ratio of NPLs to total loans hit 12.56 percent last year, nearly four times the 4.01 percent reported in 2014.
Its decision to cut unsecured loans was in line with that of Equity Bank
which also announced in 2017 that it was going to cut unsecured loans due to the rate cap laws introduced in September 2016.
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