Top-tier lender Standard Chartered Bank #ticker:SCBK plans to continue issuing unsecured loans to customers, bucking the trend by other lenders of shunning such products ahead of new tough loan loss cover rules set to kick in next year.
The listed lender shocked the industry on August 28 when it allocated Sh10 billion to unsecured personal loans, in contrast with peers such as Equity Bank #ticker:EQTY which is moving away from risky loans ahead of the coming into force of the new guidelines, technically referred to as International Financial Reporting Standard (IFRS) 9.
StanChart chief executive Lamin Manjang said the listed bank has invested heavily in data analytics to support risk-based lending which informed investment of the Sh10 billion towards unsecured personal loans.
“We are able to analyse portfolio and within that portfolio, clients that meet our risk threshold,”Mr Manjang was speaking after the bank signed a bancassurance deal with Sanlam in Nairobi Wednesday.
“With those clients we are very comfortable extending additional credit to them.
‘‘It is not an indiscriminate increase in the loan book, (but) one based on solid data analysis in terms of risk profile.”
The IFRS 9 rules require lenders to set aside cash for expected rather than incurred credit loss (which they already do under CBK’s prudential guidelines) based on historical loan performance data.
esides the risk of default for individual borrowers, the accounting rules, which replace International Accounting Standards (IAS) 39, also require banks to consider the macroeconomic outlook when provisioning for future losses.
The lenders will, for example, have to set aside cash for expected loss for a year if a credit facility is in default after 30 days and for its lifetime if the default persists beyond 60 days.
This will eat into their capital, calling for caution when advancing loans to riskier segments to avoid increasing loan loss provisions.
“We have done an analysis of the impact and we believe we will absorb it on the first day without significantly impacting on our capital adequacy ratios,” Mr Manjang said.
Non-performing loans in the industry rose to 10.7 per cent of gross loans in August, or more than Sh250 billion, from 9.9 per cent in June largely due to layoffs in the private sector and delayed payments to suppliers by the government, latest Central Bank of Kenya data shows.