How Absa kept corporate credit flowing amid shocks

By OTIATO GUGUYU

More by this Author

Kenyan corporate loan book has grown over the last year despite many problems from

Covid-19, Russia’s war in Ukraine, supply chain breakdown, dollar shortages and high loan default rates.

Absa Regional Corporate Director, East Africa, James Agin spoke with the Business Daily about how banks have kept the taps running during these tumultuous times.

***

DID COVID LAST YEAR AFFECT THE LEVEL OF LENDING TO CORPORATES?

No, corporate lending still flourished. In fact, when we did the analysis of financial reports, all but one actually showed growth in corporate lending books and portfolios.

What I also found interesting is that even through that period a lot of corporates were actually doing plant modernisations and expansions.

WHAT ARE SOME OF THE THINGS YOU DID DURING COVID TO HELP YOUR CORPORATE CLIENTS STAY AFLOAT?

We made a very intentional decision to demonstrate being there for our customers to beat the Covid crisis and most importantly work with them in giving thought leadership and industry insights in terms of how they can navigate the market.

Our sector experts have been having conversations with clients on how they can overcome this period of crisis. Also, from a financing perspective we actually went all out to provide additional finances that many clients needed and gave any necessary accommodation that clients requested to enable them to get out of this particular cycle.

WE HAD BARELY OVERCOME THE PANDEMIC WHEN THE WAR BROKE OUT. ARE YOUR CUSTOMERS AGAIN ASKING TO BE ACCOMMODATED?

Yes, that brought in again another different challenge to the economy and customers that we support. We saw the uplift in commodity prices which affected most of the common inputs, whether it is raw materials, foodstuffs, hard commodities, soft commodities, fertilisers, you name it.

Our clients saw that challenge coming up from a cost of business perspective. So you realise for the same quantity of imports that any client wanted they needed a much higher level of working capital.

We had to step in and see how we could support our customers to go through this cycle where we all saw the prices of most global commodities had gone up.

HOW HAVE YOU BEEN ABLE TO HELP GIVEN THAT THIS TIME ROUND CBK DID NOT GIVE THE KIND OF SUPPORT SEEN DURING COVID-19 SUCH AS ALLOWING BANKS TO SUSPEND LOAN PAYMENTS FOR A YEAR?

We actually did a lot of work with our clients in terms of working capital cycles and where there was a requirement for the bank to give additional support to enable them to continue bringing the same level of quantity.

Again, that has come through very well. We have not seen any of our clients suffer from stockouts or inability to meet their import requirements because of lack of working capital because we were keen to step in and support them.

THE PANDEMIC AND THE WAR HAVE ALSO CREATED LOGISTICAL CHALLENGES AND DELAYS IN THE SUPPLY CHAIN. HOW HAS THAT AFFECTED YOUR CUSTOMERS?

Of course, it has. We saw the length of the working capital cycle increase because of logistical challenges.

As we all know there is a big challenge on the logistical framework globally. We saw the amount of time imports were taking to come in taking a bit longer because of ships being scarcer, unable to dock, having crews who are unwell, or being relocated to routes deemed more profitable.

Because of that we also saw a disruption in the supply chain requiring additional working capital from a lot of our clients.

WITH SUCH RISKS AND UNCERTAINTIES WERE YOU STILL ABLE TO CONTINUE SUPPORTING THE AFFECTED BUSINESSES?

In most instances, you realise you don’t want to start telling a client to liquidate assets to provide capital to inject whereas you fully understand where the challenge is coming from.

So in those type of instances so long as the client has demonstrated the ability to remain profitable despite that increase in working capital, by passing costs to customers for example, we are happy to extend additional credit in line with the working capital cycle that they’ve shared with us showing that they need this much more.

BUT THAT ESSENTIALLY MEANS HIGH PRICES. ARE YOU WORRIED THAT WITH THIS INFLATIONARY PRESSURE YOUR CUSTOMERS WILL HAVE A CHALLENGE SELLING TO CONSUMERS AND PAYING YOU BACK?

What we are seeing in the market is the manufacturers are absorbing more of the shock. They are saying let us keep the business afloat, this is seasonal it will come to pass as opposed to trying to push it to prices.

We are very fortunate cartel practices aren’t common. So you will not find a massive uplift of a commodity price because all manufacturers have agreed to push the prices up.

What we tend to see is they bid so much against each other, with everyone trying to leverage their competitive advantage whether it’s distribution infrastructure, manufacturing efficiency, product quality and because of that we probably see more undercutting

What we have seen in the country is not the full impact of the cost of international commodities being passed directly to the consumer.

Some of it has gone through, but a lot of it is being absorbed by the manufacturers to ensure they remain in business hoping that once this starts correcting then business will return to normalcy

WE ALSO SAW MANUFACTURERS COMPLAINING ABOUT DOLLAR SHORTAGES FROM BANKS, HAS THIS AFFECTED YOU?

We are seeing light at the end of the tunnel from the currency perspective. The CBK [Central Bank of Kenya] is playing its active role in supporting the market in providing currency to ensure that clients are able to meet their obligations.

We are not seeing challenges in terms of say a letter of credit (LC) has matured and we are not able to honour it because there’s no currency.

With currency available, we then work with the clients in terms of the ones who provide the supply side of currency, the ones who then consume the currency and then try to match that as much as possible to ensure that we collect sufficient currency from the export-led clients to service and import clients.

So far we’ve not seen an instance where a client’s LC has matured or a bill due for payment has matured and they are defaulting because they cannot get that currency.

So yes, it’s coming in at a slower pace but the availability is there and the CBK is actively trying to ensure that we don’t get into those kind of challenges where clients are now stuck and unable to meet their obligations.

dguguyu@ke.nationmedia.com