Housing Finance Company (HFC), the mortgage lending and banking subsidiary of HF Group #ticker:HFCK, raised medium-term loans last year at the expense of long-term loans as it sought to cut an asset liability mismatch.
Overall the financier’s loans and advances went up by Sh2.1 billion to Sh57 billion in 2016 compared to the previous year.
Out of the total loans and advances, those maturing within five years rose by Sh1.8 billion to 18.2 billion while those maturing between five and 10 years rose by Sh4.9 billion to 15.2 billion.
Loans maturing between 10 to 15 years rose by Sh1.6 billion to Sh17 billion in 2016 compared to the previous year. However, loans over 15 years decreased by Sh3 billion to Sh6.3 billion, according to its annual report.
HFC managing director Sam Waweru said the shift to shorter term loan products is meant to address an asset liability mismatch.
He maintained that this does not affect the lender’s mortgages whose average life is 13 to 14 years.
HFC’s other product lines include asset finance, insurance premium financing, overdrafts and trade finance.
“We don’t want to lose our competitive edge in the property space but at the same time we have been diversifying our lending in line with our funding lines.
‘‘We have had an asset and liability mismatch for a long time.
‘‘What we have been doing with other sources of funding from the DFIs (Development Finance Institutions) is to try and address that,” said Mr Waweru. Borrowers prefer longer tenures to ease burden of repayment.
A mismatch occurs when the tenure of maturing loans (which are on the assets side of the balance sheet of a bank) do not match the tenure of the sources of funds on the liabilities side.
“We are aggressively looking for longer term funds that can now be matched to our asset lending,” said Mr Waweru.
The liabilities side of the balance sheet of a bank includes sources of funds and for a bank one of the main sources of funds are the deposits.
Small lenders have struggled to raise cheap deposits to fund their lending activities post rate capping law.
The Banking (Amendment) Act 2016 sponsored by Kiambu MP Jude Njomo came into force on September 14 introducing legal caps on interest rates.
The legislation sets the maximum lending rate at four percentage points above the Central Bank Rate (CBR).
It also sets the minimum returns payable by banks on customer deposits at 70 per cent of the CBR.
The CBR is currently at 10 per cent, meaning banks are barred from charging loan interest above 14 per cent.