Banks have been asked to change their attitude on lending to Small and Medium Enterprises (SMEs) in light of a new study that discredits their tag as high-risk borrowers.
New research by ICEA Lion Asset Management shows some banks have reported higher Non-Performing Loans (NPLs) from their corporate customers compared to SMEs.
According to the firm’s Economic and Investment Landscape 2021 Report, this is despite the ravages of the Covid-19 pandemic on the economy, with SMEs as some of the hardest hit.
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ICEA Lion Asset Management Head of Research Judd Murigi yesterday said since 2013 banks had NPL ratios for corporate customers hitting “high” double digits of between 12 and 15 per cent.
This is compared to the single-digit NPLs for SMEs at between 5 per cent and 10 per cent. “This somewhat debunks the common perception that SMEs represent high-risk borrowers,” said Mr Murigi at the report’s launch in Nairobi.
He noted that the pandemic had provided banks with a “rare learning” opportunity, seeing that they had been “starved of credit opportunities” for almost five years owing to factors such as the interest rate cap.
“Consequently, the pandemic offers banks the opportunity to increase their lending appetite for SMEs, by availing working capital facilities for them to get back on their feet, grow and help in resuscitating the economy,” he added.
According to the investment outlook, banks are expected to record sharp earnings recovery in 2021 on account of reduced loan losses.
Private sector growth, which stood at 7.7 per cent by the end of 2020, according to the Central Bank of Kenya Data (CBK), is expected to hit double-digit growth for the first time in five years since the repeal of the rate cap.
The outlook notes that “upward pressure” on interest rates may resume this year as the government faces fresh competition from the private sector for bank funding.
“We recommend investors invest in short-term fixed-income securities so as to take advantage of any increase in rates in 2021,” advised the outlook.
It further noted that the economy would recover this year following the slowdown caused by the pandemic.
The recovery would be pushed by the education, hospitality, manufacturing, trade and transport sectors.
At the same time, ICEA Lion Asset Management launched DigiTrust, an online investment platform, which enables investors to deposit and withdraw from the ICEA Lion’s Money Market Fund.
Investors can place an initial investment of as low as Sh500.
“DigiTrust enables individual savers and investors to deposit in and withdraw from ICEA Lion’s Money Market Fund on a secure platform,” said ICEA Lion Asset Management’s General Manager for Business Development and Client Elizabeth Irungu.