BY CONSTANT MUNDA
NAIROBI : Equity Group chief executive James Mwangi yesterday advised borrowers to shelve long term projects that are not urgent in view of the prevailing interest rates.
Mwangi said banks have no choice but lend at levels above the Treasury bill rate – the interest rate the government is paying for short term debt – which last week reached 22.5 per cent for the benchmark 91-day facility.
“We will appeal to you to maybe postpone huge projects temporarily,” Mwangi said. “If we try to lend at a lower rate than 22 per cent, what we are saying is that you can just take that money and make a fool of ourselves [so that] instead of us [banks] buying Treasury bills, it is you [borrower] who is buying the Treasury bills.”
He spoke after the group announced a 14.27 per cent rise in net profit to Sh12.81 billion in nine-month period through September, largely on non-funded earnings that jumped by a third to Sh16.81
The regional subsidiaries contributed Sh2.47 billion or 9.65 per cent to the group’s Sh15.90 billion earnings before taxation.
Loans grew by Sh56.7 to Sh263.40 billion compared to the same period last year which helped grow interest income by 18.85 per cent to Sh25.60 billion.
Equity has increased its cover against bad debt to Sh1.70 billion from Sh899.9 million a year ago. The high interest rate offered by the government has helped the shilling appreciate by a relatively low 14.27 per cent year-on-year against the US dollar through yesterday’s 102.16 average levels compared to the neighbouring countries.
The shilling had by September appreciated by over 13 and 15 per cent year-on-year against Tanzania’s and Uganda’s currencies.
The upward pressure on interest rates has been worsened by high domestic borrowing by the government after the Kenya Revenue Authority missed its first quarter revenue collection target.
Last week, the government took in Sh33.49 billion, 537.25 per cent more than Sh12 billion it had offered on the weekly auction with subscription reaching 336 per cent due to high returns offered.
Banks are consequently pricing unsecured loans as high as 27 per cent from the industry average of 15.68 per cent in early August when 91-day T-bill rate was 11.5 per cent. Mwangi projected a return to stability by next March.
Treasury PS Kamau Thugge said on Sunday the government expected to this week get the $750 million [Sh76.62 billion] syndicated loan from Citi Bank of US, London’s Standard Chartered Bank and South Africa’s Standard Bank.
Thugge said the loan together with revenue mobilisation efforts by the KRA and measures to increase cash supply by the Central Bank, will ease pressure on interest rates when domestic borrowing starts going down in “the next two weeks”.