Late payment to suppliers is crippling small businesses, leading to high non-performing loans in the country, Equity Bank has revealed.
Speaking while releasing the bank’s half year results for the period to June 30, chief executive James Mwangi said high loan default rate by small businesses coupled by interest capping has forced the bank to gravitate towards government securities, crowding out private sector.
‘’We understand that small businesses are struggling to meet their credit obligations due to late payments by both counties and national government. The country’s non-performing loan rate is at 12.1 per cent. This is way too high,’’ Mwangi said.
He hopes that the growth momentum in the country after long election cycle will drive revenue collection to enable government pay suppliers.
He welcomed the proposed Kenya Banking Charter by CBK that compel banks to allocate 20 per cent of business loans to small enterprises terming it as clearest indication by the government to do away with ‘oppressive’ interest capping law.
His sentiments were echoed by the bank’s chief commercial officer Polycarp Igathe, who called on parliament to quickly do away with interest cap rating to save small business operators now being exploited by informal lenders.
‘’Small businesses and consumers are now charged up to 260 per cent interest on credit by informal lenders. Market led pricing will see banks unlock capital held in government securities to private sector; drivers of Kenya’s economy,’’ Igathe said.
Latest report by Central Bank shows that 10 per cent of non-performing loans in the market are as a result of late payments to suppliers.
Equity Bank Group reported Sh11 billion in net profits for the half from Sh9.4 billion the previous year, representing 18 per cent growth on back of political calmness in East Africa.
The lender’s net interest income climbed nine per cent to Sh19.6 billion from Sh17.9 billion in the same period of 2016 as the impact of the September 2016 legal ceilings on loans wanes.
Loans to customers expanded by a marginal 4 per cent to Sh275 billion from Sh265.1 billion, reflecting the lender's continued refusal to fund risky micro enterprises and households who do not have security.
The Group’s deployment of funding was underpinned by investment in government securities which grew by 37 per cent to reach Sh159 billion up from Sh 116 billion. This reflects the impact of interest capping in Kenya in lending to the private sector. The Group’s balance sheet reflects a liquidity of 59.4 per cent up from 54.4 per cent.
“The Group’s agile balance sheet with strong liquidity held in near cash assets strategically positions the Equity for opportunistic growth. A dramatically changing environment has seen political risks in South Sudan and Kenya decline with the collaborative peace initiatives taking root,’’ Mwangi said