Equity Bank scales back mobile loans in favour of one month advances

Equity Bank has scaled back its mobile phone based loans, preferring to issue smaller denomination, shorter term credits.

The bank has put on hold Eazzy Plus loans, on which borrowers could get multiples of their average monthly cash inflows payable in two months to one year.

Borrowers are now restricted to taking only a fraction of the average monthly cash inflow payable within one month — called the Eazzy loans.

Equity Bank did not respond to our queries on the matter by the time of going to press. It has however said on its social media pages that the product is under review and could be reinstated with alterations.

Analysts at Standard Investment Bank (SIB) expect banks to further tighten their credit policies to manage risk in the era of controlled lending rates.

“With the law essentially limiting a bank’s capability to price in risk, we believe banks are likely to be more stringent on lending standards or opt for shorter term loans,” SIB said in a statement. The investment bank added that the restriction will likely lead to slow loan book growth.

READ: Equity to extend new lending rules to mobile borrowers

KCB Group was among the first to review its mobile lending policies, cutting the repayment period from six to one month in September when the capping of lending rates started.

Banks previously managed their credit risk by charging higher rates on loans deemed riskier but the capping of lending rates has disabled this option.

The law sets the floor for deposit rates at 70 per cent of the Central Bank Rate and a ceiling for lending rates at four percentage points above the benchmark rate.

This places the current interest rate on interest-bearing accounts at a minimum of seven per cent and the lending rate at a maximum of 14 per cent, with the CBR at 10 per cent.

The inability to charge higher interest rates on riskier borrowers is also a major barrier to increase lending as a means of overcoming the compressed spread of seven per cent, analysts say.

“Though most banks are targeting volume growth on loans to help compensate for the loss in net interest income, we are not confident in high volume growth being achieved,” SIB said.

The Eazzy platform is part of Equity’s strategy of serving its customers remotely through technology, cutting costs by reducing reliance on brick and mortar branches.

Equity is the largest retail bank in the country with more than ten million customers.

Suspension of the Eazzy Plus loans has been met with disappointment among customers who used it to get relatively larger loans in a simple process and at the current lower rate of 14 per cent thanks to the law.