Small and medium-sized enterprises (SMEs) face a credit squeeze when banks adopt tougher standards of scrutinising borrowers, analysts said.
Analysts at Britam Asset Managers said implementation of the International Financial Reporting Standard (IFRS) 9 from January 1, 2018 will come with stringent conditions on how banks account for non-performing loans, dealing a blow to small borrowers who are traditionally viewed as risky.
“It will increase the threshold of provisions for impairment losses thereby requiring banks to hold more capital buffers to cushion the loan loss allowances following its implementation,” said Mercy Gatukui, an investment analyst at Britam Asset Managers during a media briefing in Nairobi.
The new accounting standards require banks to make higher loan loss provisions to withstand any possible shocks. Some banks reckons that it is unprofitable to operate under the current interest rate capping regime which has narrowed lending margins.
“The longer the rate caps stay in place, the greater the magnitude of credit contraction which further puts the anticipated economic growth at risk,” said Ms Gatukui.
Last month, Equity Bank #ticker:EQTY, Kenya’s biggest lender by customers, announced that it was cutting down unsecured and micro loans to comply with the new IFRS 9 rules.
The lender said it was moving away from unsecured and small business loans ahead of the coming into force of the new guidelines. According to Britam Asset Managers, private sector credit has been sluggish in the last two years.