Barclays Bank CEO Jeremy Awori.[HapaKenya]
Following the new global accounting standards,bank borrowers face higher monthly loan repayments as lenders shorten credit tenures.
The new accounting standard, requires banks to immediately start setting aside cash for the loans they advance to risky borrowers. This is an exist from the current rule where banks start setting aside cash when a borrower defaults on loan repayment.
“With IFRS 9, once you move to where a customer has defaulted, you have to provide for the life of the loan,” said Barclays Bank CEO Jeremy Awori.
“So if you have got a longer tenure loan, you obviously have to provide more and that’s where we could start seeing a shortening of the tenures of the products which had moved out to 84 or even 96 months for unsecured loans. I expect that to start shortening.”
Those paying Sh23,268 monthly for a Sh1 million loan of 60 months borrowed at 14 per cent interest will pay Sh34,177 when they take a similar credit with a repayment period of 36 months.
Micro and small enterprises, the dominant businesses in Kenya, will be hardest hit by the new accounting standard because they are perceived the most risky.
Lenders have responded by cutting credit growth to small and medium-sized businesses, saying the cap takes away their ability to give loans to risky borrowers.