Innovation drives asset financing drives

Competition in asset financing is forcing major Kenyan commercial banks to innovate and reduce the turnaround time for application approvals.

Several banks have in the recent few months come up with new asset finance products that are estimated to be contributing about 15 per cent of their total commercial bank loan books.

Major banks that have unveiled such products include Barclays, Diamond Trust Bank (DTB), Kenya Commercial Bank (KCB), CFC-Stanbic, NIC and Cooperative Bank.

Last week, NIC Bank launched a five-month publicity campaign dubbed “Think Biggest” that will cost over Sh30 million in adverts and bill boards.

The move is expected to see the bank reduce its application turnaround time to two days and increase its loan book by over 30 per cent in the next two years.

NIC, with an estimated 20 per cent asset finance market share, earns a third of its revenue from asset financing products.

It is currently ranked among the top 10 Kenyan commercial banks with a total asset base of Sh52 billion as at the end of March, this year, which include an asset finance book of over Sh10 billion.

Areas of high demand for asset financing facilities include agriculture, construction, tourism and transport.

In the past two years, the agricultural sector recorded a massive reduction in the number of machinery acquired through asset financing due to a severe drought that ravaged the country, reducing productivity in the sector by 4.0 per cent in 2008 and by 2.4 per cent in 2009.

“We expect the agriculture sector to improve its up take of asset finance facilities as it has seen improved produce this year,” said Mr Moses Karanu, head of asset financing at NIC bank during the launch of their multi-million publicity campaign.

He also indicated that the first quarter of 2010 has been slow but it is expected to recover in the second quarter.

School buses have also become one of the major areas of lease financing ,with most schools approaching banks to enable them acquire buses and pay in installments whenever school fees is paid.

Reducing interest rates and lower base lending rates that has been witnessed in most commercial banks is also likely to fuel demand for asset finance loans.

Asset financing refers to credit facilities which are made available for the purchase/ leasing of moveable and easily identifiable capital assets and focuses largely on a primarily self securing asset which acts as the collateral to the loan.

This includes financing facilities like hire purchase and leasing.

Most banks demand that a borrower has to raise at least 20 per cent of the price of the asset, while the bank pays the remainder, with the monthly repayment period ranging from one to five years.

IT system has also come to play a major part in ease of asset financing in banks like DTB and NIC which have linked up with motor dealers to enable customers to process their purchase application in the shortest time possible.