NIC Bank to limit credit cards issuance after cap on interest

NIC Bank will issue fewer credit cards and may demand collateral in some cases because of a Government decision to cap what banks can charge for loans, its chief executive said.PHOTO: COURTESY

NIC Bank will issue fewer credit cards and may demand collateral in some cases because of a Government decision to cap what banks can charge for loans, its chief executive said.

The Government capped commercial lending rates at 400 basis points above the Central Bank’s benchmark rate (CBR), now at 10 per cent, last month, seeking to rein in banks, which it said were making increased profits at the expense of clients.

Some of Kenya’s 45 lenders have reduced their unsecured loans to customers deemed risky since the rate cap while privately-owned Family Bank has offered its staff voluntary early retirement to cut costs.

John Gachora, CEO of NIC, a mid-tier lender known for asset financing, said it was now riskier to issue cards. The credit card business accounts for Sh100 million ($1 million) of NIC’s annual revenue, but Gachora said it had been growing fast before the rate cap as more Kenyans had disposable income in line with the expanding economy.

Gachora did not give a figure for the number of cards the bank has issued or the interest rates before the cap but Kenyan lenders usually charged above 20 per cent before the cap. “Does it (the credit card business) go? No. But it has to take a significantly new shape,” he said, adding that NIC would be more selective as it picks those who qualify for a card and in some cases impose collateral.

“For some people it may require for them to (offer) cash cover or cash to collateralize a portion of their credit card.”

The rate cap is expected to squeeze net interest margins for banks, which averaged 7-10 per cent before it came into force, hurting shareholder returns. The cap also knocked bank shares. KCB, the country’s biggest bank group by assets, said on Tuesday it expected its return on equity to drop by 400 basis points this year to 21 per cent.

Kenyan lenders enjoy higher ROEs than their counterparts in South Africa and Asia, both with an average of 18 percent, and single figures in Europe and the United States.

President Uhuru Kenyatta signed into law the Banking (amendment) Act to cap the price of loans at a maximum of 4 per cent above Central Bank rate (CBR). The new law also requires banks to pay up to 70 per cent interest on deposits.

Lenders that charge borrowers more than the stipulated interest rates will be fined Sh1 million or their chief executives imprisoned for one year.