Inside KCB’s bold step in doubling SMEs lending

KCB Chief Executive Joshua Oigara [Courtesy]

KCB net profit for the nine months ended September grew by 131 percent to Sh25.2 billion, racing past the full year earnings for 2020.

The KCB group CEO Joshua Oigara spoke to Enterprise about the pockets of recovery in the economy and the lender’s bold move in stepping up lending to micro small and medium sized enterprises (MSMEs).

Oigara also talks about the credit outlook especially to small firms, given the 12-month freeze on listing of defaulters of below Sh5 million.

From 2020 that you termed as survival year, your nine-month profit for 2021 points to a strong recovery. What’s the power behind these numbers?

We have seen a strong rebound on our performance. All sectors are rebounding very strongly whether it is trade, agriculture, manufacturing, education, real estate or consumer lending. These pockets of growth are what is driving the momentum in the group results.

What is your outlook on lending, especially to MSMEs, given the Presidential order for a 12-month freeze on listing defaulters of loans below Sh5 million? 

We remain confident that we will achieve our growth. Today our loans are growing at double digits. It is only in mobile lending where we haven’t grown as fast as we would have wanted.

I remain confident of loan growth especially for SMEs and large corporates.

We have launched an ambitious project on SMEs and we believe we will more than double our SME lending by between Sh50 billion and Sh60 billion in the next one year.

Central Bank of Kenya warned that Credit Reference Bureau listing freeze may lead to credit rationing. What is your view?

There is always the risk that some pockets of the economy will have difficulties. For us, we will continue lending to the SMEs that we have in this period.

We know the SMEs we are dealing with and we have the opportunity to increase the size of the portfolio.

Looking at the breakdown of your non-performing loans (NPL), large corporates lead with NPLs ratio of 17.9 percent, which is above the 9 percent for SMEs. Why?

It is a cycle that we find ourselves in. You can see the difficulties of some corporates listed on the Nairobi Securities Exchange.

Some of our corporates especially in agricultural and manufacturing sectors have had some difficulties. It is seasonality for corporates. It is not normal that they have high NPLs.

It also shows the opportunity we have to turn them around. Most of them were already in difficulties before the pandemic so the pandemic exacerbated their condition.

Does the low NPL ratio for SMEs mean small firms turn around their fortunes much faster? Is it a view KCB has picked in this pandemic?

I will say no. A number of large corporates had difficulties before the pandemic. And remember we were coming out of the interest rate cap regime in 2019.

So the NPLs are for varied reasons. Many of the large firms are resilient too. It is very good challenge to have—that our large corporates, more resilient businesses, are leading in NPLs.

KCB long term borrowings have grown 73 percent to Sh35.3 billion. What is the thinking behind this?

Largely, it is for lending to SMEs and supporting the businesses in the region, especially the green projects.

There’s a gap between the pace at which banks like KCB are tapping the long term loans and lending to SMEs. What’s the missing link?

That’s true. The crisis in 2020 in particular created some delay. But there is more than just lending. We are doing training and capacity building to create a network of enterprises.

Our approval rates are today at 90 percent of all applications, up from 50 percent. Our end to end turnaround time is down to seven days from 14 days.

We should be in a position to grow and double our portfolio for SME lending this year and also next year.

What has been the initial impact of credit guarantee scheme on the lending you have made to SMEs?

We have utilised a quarter of that guarantee scheme. It is a great initiative. It started slow but we have seen utilisation rise in the last quarter.

Our ambition is to be at 50 percent by end of the year. We have not had a single claim and also there is no loan that has gone under.

We are currently reviewing the components or the rations that customers go through so that we can hit 75 percent and above utilisation by the next financial year.

You have talked about extending loan tenures and enhancing limits for MSMEs. Could you give some colour on this? 

At the end of nine months, we are up 47 percent to Sh46 billion for SMEs lending. We expect to grow by 50 percent by year end.

It is about finding short-term lines that enables them to meet cash flow needs and also increasing their credit limits.

Where we had Sh1 million limits, we have tripled that to Sh3 million. This is available at branch levels with same day approvals.

Doubling or tripling approvals at branch level gives you opportunity to grow loan book. It is a very exciting space to be in today.