NIC Bank's exposure in unsecured loans dropped from Sh4.63 billion in 2018.
This means more borrowers were required to present collateral to get loans.
NIC Group #ticker:NIC cut unsecured loans by a third to Sh3.12 billion in the financial year ended December 2018, pointing to tight access to credit since the onset of interest rate cap laws.
The lender disclosed in the annual report that its exposure in unsecured loans, usually approved based on credit history and income but no collateral, dropped from Sh4.63 billion during the period under review.
“While collateral is important mitigate to credit risk, the group’s underwriting policy ensures that loans are strictly granted on a going concern basis with upfront adequate demonstration of repayment capacity,” the bank said.
The drop means more borrowers were required to present collateral such as land or car to get loans, as banks moved to control stock of non-performing loans.
The onset of forward-looking International Financial Reporting Standard (IFRS) 9 saw banks put stricter measures in advancing loans. NIC said the fair value of collateral held for impaired loans and advances rose by 22.7 percent to Sh8.75 billion from Sh7.13 billion in the previous year. During the period, non-performing loans (NPLs) rose by 17.5 percent from Sh14.3 billion to Sh16.8 billion.
“The rise in NPLs is occasioned by a few delinquent customers causing a decline of the credit quality of the book. We have intensified our remedial and recovery efforts,” said NIC in the report.
The ratio of NPLs to total loans hit 12.56 percent last year, nearly four times the 4.01 percent reported in 2014.
Its decision to cut unsecured loans was in line with that of Equity Bank #ticker:EQTY which also announced in 2017 that it was going to cut unsecured loans due to the rate cap laws introduced in September 2016.
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