NIC Bank shifts focus to SME loans in era of interest rate cap


NIC Bank’s group managing director John Gachora. PHOTO | FILE

Mid-sized lender NIC Bank is wooing more small and medium enterprises (SMEs) to its banking halls to cushion its bottom line following the recent cap on interest rates that is expected to squeeze the lenders’ profit margins.

The lender announced on Tuesday that it is sharpening its focus on SMEs as the centre of its business model.

“We lend Sh20 billion every year to the segment, we want to increase this upwards and that is why we want to understand SMEs better,” said NIC Bank’s group managing director, John Gachora.

He spoke in Nairobi when the lender organised a workshop which brought together over 200 entrepreneurs to discuss their opportunities to access financing after the new rate-capping law came into effect.

The Banking (Amendment) Act, 2016, which came into force on September 14, sets the maximum lending rate at four percentage points above the Central Bank Rate (CBR).

The law also sets the minimum returns payable by banks on customer deposits at 70 per cent of the CBR.

The CBR is now set at 10 per cent, meaning that banks are barred from charging interest on loans above 14 per cent. Experts say small banks that have been operating on tight margins are likely to feel the heat more.

The smaller lenders have been charging higher interest rates compared to larger peers to compensate for paying a higher price for deposits, and, therefore, have had to cut their average lending rates by the widest margin.

READ: SMEs shun banks, turn to family for start-up cash

Mr Gachora who is also the vice chairman of the Kenya Bankers Association (KBA) said while lenders had initially been opposed to regulating lending rates, NIC would lead other banks in stepping up its lending.

“We are asking what the opportunity is for SMEs in this new era. We want to explore new ways in which they can benefit,” said Mr Gachora. “We want to understand them better so as we can serve them better.”

Speaking at the workshop Industrialisation Principal Secretary Julius Korir tipped SMEs to formalise their business to stand a better chance of increasing their engagement with banks and the State.

NIC Group posted a net profit of Sh2.3 billion for the period ending June 30, 2016, a growth of three per cent year on year.