NIC plans to trim credit cards over in­ter­est cap

The bank’s CEO says some peo­ple may be re­quired to of­fer cash cover or cash to col­lat­er­alise a por­tion of their credit card

The Star (Kenya) - - News -

REUTERS / NIC Bank will is­sue fewer credit cards and may de­mand col­lat­eral in some cases be­cause of a gov­ern­ment cap on what banks can charge for loans, its chief ex­ec­u­tive has said.

The gov­ern­ment capped com­mer­cial lend­ing rates at 400 ba­sis points above the cen­tral bank’s bench­mark rate, now at 10 per cent, last month, seek­ing to rein in banks which it said were mak­ing in­creased prof­its at the ex­pense of clients.

Some of Kenya’s 45 lenders have re­duced their un­se­cured loans to cus­tomers deemed risky, since the rate cap, while pri­vately owned Fam­ily Bank, has of­fered its staff vol­un­tary early re­tire­ments to cut costs.

John Ga­chora, CEO of NIC, a mid-tier lender known for as­set fi­nanc­ing, said it is now riskier to is­sue cards.

The credit card busi­ness ac­counts for Sh100 mil­lion ($1 mil­lion) of NIC’s an­nual rev­enue, but Ga­chora said it had been grow­ing fast be­fore the rate cap as more Kenyans had dis­pos­able in­come in line with the ex­pand­ing econ­omy.

Ga­chora did not give a fig­ure for the num­ber of cards the bank has is­sued or the in­ter­est rates be­fore the cap, but Kenyan lenders usu­ally charged above 20 per cent be­fore the cap.

“Does it (the credit card busi­ness) go? No. But it has to take a sig­nif­i­cantly new shape,” he said, adding that NIC would be more se­lec­tive as it picks those who qual­ify for a card and in some cases im­pose col­lat­eral.

“For some peo­ple it may re­quire for them to (of­fer) cash cover or cash to col­lat­er­alise a por­tion of their credit card.”

The rate cap is ex­pected to squeeze net in­ter­est mar­gins for banks, which av­er­aged seven to 10 per cent be­fore it came into force, hurt­ing share­holder re­turns. The cap also knocked bank shares. KCB, the coun­try’s big­gest bank group by as­sets, said last Tues­day it ex­pected its re­turn on eq­uity to drop by 400 ba­sis points this year to 21 per cent.

Kenyan lenders en­joy higher ROEs than their coun­ter­parts in South Africa and Asia, both with an av­er­age of 18 per cent, and sin­gle fig­ures in Europe and the United States.


NIC Bank group man­ag­ing di­rec­tor John Ga­chora dur­ing a past press con­fer­ence at the In­terCon­ti­nen­tal Ho­tel

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