Equity Bank has spared borrowers with pre-existing loan facilities from higher interest rates even as it completes the switch to full risk-based pricing in Kenya.
Credit facilities prior to 2019 have had interest terms unchanged alongside consumer loans disbursed before January this year when the bank first implemented the new pricing model.
“Any loan prior to 2019 was not subject to the review. We also didn’t review consumer loans because we knew disposable incomes had been depleted. Consumers who have taken loans after January are paying for their risk,” Equity's chief executive James Mwangi said on Tuesday.
Having been among the first banks to receive the nod of the Central Bank of Kenya (CBK) to undertake risk-based pricing, Equity, at the start of the year, moved to implement the new pricing regime where riskier customers began paying up to 21.02 percent for loans.
Equity set its internal benchmark lending rate at 12.5 percent with a maximum margin of 8.5 percent.
The bank had previously paused the risk adjustments to interest rates noting the gloomy macroeconomic environment and its effect on borrowers.
The rate adjustments in the opening half of 2023 have meanwhile enabled the lender to cushion against further macro shocks including the general rise in the interest rates environment and a weaker exchange rate.
“That strategic process positioned us well because the Group has been able to recalibrate its risks. We see the risk of interest rates, inflation and the exchange rate which would have played out very adversely if we had not put in place the mechanism,” Mr Mwangi added.
At present, 33 lenders have received CBK’s green light to implement risk-based pricing but have been applying the nod with varying degrees and timing.
Risk-based pricing allows commercial banks to price credit based on risks presented by each individual borrower including their ability (or inability) to repay their respective facility/facilities.
During the first six months of the year to June, Equity grew its customer loan book by 26 percent to Sh817.2 billion from Sh650.6 billion previously.
Net interest income for the group jumped 17 percent to Sh69.8 billion from Sh55 billion, partly helped by higher interest rates on a section of the credit facilities.
Equity apportions the bulk of its loans to trade and households based on the disclosure of its assets distribution.