Equity Bank has announced that it will cut down on unsecured and micro loans (salary loans) from January 1, 2018.
A salary loan is a small, short-term unsecured loan, that is issued to individuals with regular salaries and repayments are made through debits from their deposit accounts.
This means that salaried workers and owners of small businesses are headed for tough times as the bank makes changes to comply with a new set of global accounting rules on loan loss covers.
Equity Group chief executive James Mwangi said the lender was moving away from unsecured and small business loans — which are deemed risky — ahead of the coming into force of the new guidelines, technically referred to as International Financial Reporting Standard (IFRS) 9.
“We are moving away from unsecured lending.
"IFRS 9 requires you to use historical ratio to make provisions at the point of booking the loan. This is not sustainable with a margin of seven per cent,” Mr Mwangi was quoted by the Business Daily.
According to the new accounting standards, banks are required to make higher loan loss provisions to withstand any possible shocks.
Equity is Kenya's biggest bank by customer numbers with a client base of 11.7 million and recently announced a 7.4 drop in net profit.
It has traditionally focused on micro-enterprises and low-income earners to grow volumes and overtake other banks that have been in the industry for longer.
