Interest rates: The right time to upgrade equipment

A trucks assembly plant in Nairobi. file photo | nmg
A trucks assembly plant in Nairobi. file photo | nmg 

NIC Bank Kenya #ticker:NIC is seeking to increase its customer base and mitigate against the effects of the interest rate cap by renewing the up to 95 per cent asset financing partnership with Simba Corporation Ltd, distributors of Mitsubishi cars.

“We have always been strategic partners and given the economic climate in 2017, both partners felt it prudent to extend this partnership to enable consumers to ride through the hardship of the first two months of the year,” said Dinesh Kotecha, Simba Corp Group chief executive officer.

“We would like all customers to have access to purchase our trucks and have a comfortable repayment period. This will grow our customer base even as the customers grow their businesses,” he explained.

Under the new agreement, Simba Corp customers will also enjoy a 60-day repayment holiday for all Mitsubishi Fuso trucks, including pick-ups under the deal. Its target market also includes small and medium enterprises.

With loan repayments that are not immediate and 95 per cent asset financing, NIC Bank is likely to entice customers with the offering.

It is at a time Kenyan lenders have cut their lending rates in order to comply with the law that sets it at four percentage points above the Central Bank Rate; 10 per cent. The CBR changes, but has remained at 10 per cent since the capping law took effect.

“This offering presents a strong value proposition to customers who are keen on expanding their businesses and buying new assets but face strained cash flows due to the difficulties we experienced last year,” said Alan Dodd, NIC Bank’s executive director.

“Through this partnership, we will further cement our position as the leading bank in asset finance in the country, a well-known heritage, as well as enable us to reach out to new markets, especially the Coast region, where we have recently opened branches.”

The low-interest rate thus offers an opportunity for businesses to upgrade their assets and equipment especially in industries such as construction where the nature of the work, strains their tools and the transport of heavy raw materials shorten the lifetime of its trucks.

Heavy commercial vehicles account for about 26.8 per cent of the market share in vehicles sold in the country and with the ongoing construction projects, sales are likely to increase.

According to a 2014 research by East & Partners, an international banking market research and analysis rm, on asset financing in Australia, found that the low-interest rates experienced at that time due to the strong value of the dollar led many businesses to lock in lower financing costs, tempting them to upgrade aging equipment through asset financing.

“Just as the prospect of a falling dollar has encouraged businesses to take advantage of import opportunities while the dollar is relatively strong, the possibility that interest rates may rise appears to be driving many businesses to consider locking in low rates on asset finance while they are still available.

While future interest rate movements are always difficult to predict with certainty, a number of analysts have suggested that the next interest rate move is likely to be up,” reported East &Partners.

“A number of business owners appear to share that view, with many considering re-financing or upgrading equipment to benefit from more cost-effective finance.

In our survey, 38.6 per cent of businesses turning over $500 million or more a year said low-interest rates had led them to think positively about replacing their current equipment,” it says.

“Small and medium enterprises (SMEs) turning over $25 million to $150 million were less affected, with 28.5 per cent saying they were tempted to take advantage of low rates.”

Besides this, for banks, the collateral makes it a strategic marketing tool in that it is safer for them to offer loans to the private sector as they are secured.

- African Laughter