KBA CEO CHAT - Risk Aspects that Influence the Cost of Credit

CEO | Adekunle Sonola, GTBank, Managing Director
MONTH | September 2014
Chat Admin
Welcome to this weeks chat session where we will be discussing the Risks that effect the cost of credit.
Chat Admin
Our guest today is Mr Adekunle Sonola the CEO of Guaranty Trust (GT) Bank East Africa
Chat Admin
We look forward to an exciting and informed chat session.
Chat Admin
As we await the start at 10am please take time to update your profile and upload a profile picture.
Donald Kogai
Good Morning Admin, I am already on-line.
Chat Admin
Welcome Donald.
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Welcome John and Hellen. Thank you for joining us.
nuru mugambi
Good morning all
Chat Admin
Welcome Nuru and Waithera. Looking forward to this mornings chat
nuru mugambi
Looking forward as well
waithera Muiruri
thanks\
waithera Muiruri
Looking forward too
Chat Admin
Good morning Bernadette. Welcome to this mornings chat
Bernadette Ngara
Good Morning Kunle, looking forward to a good discussion.
Chat Admin
Welcome John and Anita.
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Good morning Angela.
Chat Admin
Welcome everybody. Mr Sonola is about to join us and we will be commencing in 5 minutes.
Chat Admin
Todays topic is on the Risk Aspects that effect the Cost of Credit.
Chat Admin
We welcome your questions, thoughts and comments on this topic
Chat Admin
Allow me to take this opportunity to welcome Mr Adekunle Sonola CEO GT Bank East Africa
Angela Nyabera
Good morning all, looking forward to learn more.
Adekunle Sonola
Thank you for joining us, it is good to be here..thanks for taking the time to log on...i hope to learn as much as well...i hope it is an interactive session
Adekunle Sonola
I do understand that credit is a topical issue right now...the more we talk about it the more we get comfortable around the drivers of the cost of credit
Donald Kogai
Welcome Mr. Sonala and thanks for keeping time. Looking forward to an interesting discussion.
Adekunle Sonola
it is an important topic...and we feel that it is one that we all should be interested in understanding
Chat Admin
Thank you Mr Sonola for those remarks.
Chat Admin
We now welcome any questions from the participants.
Anita Allela
Thank you Mr. Sonola for taking time to participate in this chat. Just as an overview kindly elaborate on some of the key factors that affect the cost of credit.
Adekunle Sonola
Good morning Anita...thank you for joining us
Adekunle Sonola
you have asked an interesting question...one which has multiple answers...to start with, the macroeconomic indices in any economic environment will determine the pace of economic activity in that environment, and ultimately the cost of value in that environment...for example, if the economy is in recession or growth mode it would have an impact on the cost of credit....
Adekunle Sonola
to simplify, in america for example the cost of credit has gone down significantly because that economy was in recession and therefore the Government had to intervene and significantly enable the market itself...empower the market to reduce the cost of credit
Adekunle Sonola
...if you take the case of Ghana for example...interest rates are still in the high 20s
Adekunle Sonola
...a mortgage in Ghana is over 30 per cent per annum...
Adekunle Sonola
...looking at the America and Ghana example, we can see that each market is unique in its own ways...
Alex Owuor
Good morning Mr sonola?
Adekunle Sonola
coming closer home, we can start with the fact that we have over 40 commercial banks, each with different cost structures...each with different credit ratings as an institution...and each with different credit risk appetite. Ultimately, all these factors as well as the risk profile of a company or an individual customer would affect the cost at which they borrow
martin kimeu
Good morning Kunle,
Adekunle Sonola
Thank you Alex for joining. I hope you will have an interesting hour.
Adekunle Sonola
Welcome Martin...it is good to have you here.
Anita Allela
Thank you for the answer, and am glad you have specifically referenced the Kenyan situation.
Alex Owuor
Wha are some of the factors that banks consider to offer credits to individuals?
martin kimeu
my question on cost on credit would be this;Given the various component in terms of cost that each bank factors in when pricing various products and bearing in mind the competitive nature of kenyan market, what measures is GT taking to ensure that it competes favourably through cheaper cost of funds?
Allan Ochungo
Am currently banking with GTB Kenya, would like to know if I can access credit based on my banking and not collateral?
Adekunle Sonola
Anita, I hope the responses explain some of the issues...but there are several factors and I will be glad to answer any further questions you might have
Lucy Matito
Good morning Mr. Sonola looking forward to know more about the risk factors
Elizabeth Muguiyi
Morning Mr. Sonala, the cost of credit in Kenya has been a thorny issue as Banks are said to charge very high rates. When you look at the risk factors in this economy, would you say that the costs are justified?
Adekunle Sonola
Thank you Alex...in most markets the banks would consider each individuals personal circumstance, which would include employment status, average living standards in that market, the expense profile of the borrower, other credit facilities he/she has access to and the performance of those credit facilities...and ultimately his/her repayment capacity.
Lucy Matito
How do banks compare to the micro-finance institutions which have now taken up offering more credit as compared to banks and don't you think banks are loosing out by asking for too many things and subjecting customers to long waits only to end up denying them credit?
Elizabeth Muguiyi
In regards to the new requirements by the Central Bank and the KBRR rates, do you anticipate that the cost of credit will reduce?
Adekunle Sonola
Allan...most banks in Kenya offer the unsecured loan product which is based on your account history, and the loan repayment performance of existing facilities, which is your track record. I encourage you to talk to the retail relationship officer at any branch and if you want i would be available to speak with you
Adekunle Sonola
Thank you Lucy...Allan asked the same question earlier...but if you have any specific questions, Id be happy to answer them
Allan Ochungo
Thanks boss, will do just that
Adekunle Sonola
Good morning Elizabeth...
Adekunle Sonola
Welcome to the chatroom
Adekunle Sonola
Elizabeth, you have actually asked a very interesting question
Adekunle Sonola
My answer would be...the cost of credit, is not the issue. Let me explain.
Adekunle Sonola
If you look at the American situation. In trying to get the country out of recession, the Government (Federal Reserve...which is their central bank) rate is close to Zero percent...and the average market (bank) lending rate could be up to 6 percent based on individual circumstances...but the country has been slow to come out of the recession cycle.
Alex Owuor
Since all the banks have different credit rates,why dont the banks forms some body to regulate this rates so that all banks can have the same lending rates ,so that an individual should keep on one bank not keep on shifting here and there?t
Adekunle Sonola
The bank is a business as any other that also participates in the economy, and would bear some of the challenges that are unique to every economic environment...such as infrastructure, cost of communication, cost of human capital (labour), level of taxes.
Adekunle Sonola
And credit behavior is very important and the effectiveness of the judicial / arbitration system.
Jonathan opiyo
could it be ideal to have a standard on credit rather than having the current situation where each institution sets itself a criteria where others undercut while others overcharge clients.
Adekunle Sonola
In all instances, the risk profile of the economy has a bearing on the cost of credit.
Velma Obuya
Hi Mr.Sonola, how are banks incorporating the risks that affect thee cost of credit considering the new laws trying to regulate the banks lending rates to customers? will we ever see a time where the interest rate go down to 6% ?
Damaris Lilech
Good Morning Mr.Sonola, the high cost of credit affects the SMEs significantly yet they are a critical contribitor to the economy and require credit more. what should be done to address this
Adekunle Sonola
Ultimately, Elizabeth, for every bank, given the level of competition in the industry, careful evaluation of the cost of lending is undertaken and includes some of the factors that ive mentioned
Conrad Karume
Good morning Mr Sonola, If the element of risk dramatically increases, say due political instability or terrorism, would the cost of credit be affected for customers who are already servicing a facility?
Elizabeth Muguiyi
Interesting perspective, makes a lot of sense.
Adekunle Sonola
Thank you Lucy...your question comes at the right time
Anita Allela
So do you anticipate the cost of credit in Kenya, taking into account all the factors discussed herein to go up or to decrease? What should the market anticipate?
George mathui
What informs the rate of Default Interest Rate set by the different Banks in Kenya?
Adekunle Sonola
Micro finance banks' lending rates are higher than banks, and with the exception of the deposit taking MFIs, most are not regulated by the CBK...that has an impact on their operations and their ability to serve the market quickly.
Adekunle Sonola
Banks are regulated...a thorough review of commercial banks is carried out by CBK on an annual basis, and sometimes more than once...and banks are required to comply by the CBK prudential regulations and a plethora of other international regulations...so you will find that most of the things we ask for from the customer are actually dictated by the regulations, laws and prudent risk management practices.
Adekunle Sonola
The fact that MFIs ask you for little / minimal information is compensated by the higher interest rate they would charge...it is a risk / reward principle...
Adekunle Sonola
banks have a responsibility to ensure affordability when processing applications...
Adekunle Sonola
they also have a responsibility to motivate the right credit behaviour
Adekunle Sonola
thus ensuring that individuals do not take on more credit than is sustainable for their level of income
Jonathan opiyo
why cant we have a credit standization institution to avoid undercutting and overcharging of clients?
Lucy Matito
interesting points, thank you sir but that brings me to my other question,
Lucy Matito
banks dont offer education when signing MOU'S with companies
Adekunle Sonola
Alex...thank you...i see your point that all banks should offer the same interest rate...but this would be difficult...banks do not have the same circumstances and all customers do not have the same risk profile
Adekunle Sonola
Jonathan...thank you...i believe the same applies as the response to Alex's point...
Lucy Matito
they just give out the loans not bothering whether the money will be put to good use as long as they are signing on clients,how do banks intend to tackle this issue as so many people are now in debt with money they took but did not put to good use
Adekunle Sonola
Dear Velma...let me put the question back to you...i would like to get the reason why you would like interest rates to be at 6 percent?
Adekunle Sonola
Martin Kimeu...to answer your question about competition...in Nigeria for example, the government identified priority sectors and committed a few hundred billion dollars, and set up funds that guaranteed lending to those priority industries...at a reduced rate...that did 2 things...it allowed those industries to get out of the credit market...thus increasing liquidity/availability of funding to other sectors and consumers, and my view is that it has been successful and that country is growing at an annual average of 6 per cent today.
Alex Owuor
Dear Adenkule Sonola, I hope this email finds you well.. I would like to take this opportunity to express my interest to run an exclusive feature on GT Bank with a main focus on Financial sector in relation to operational efficacy and the high quality products and services that you offer in your industry of operation in the next issue of our magazine publication so as to help expose the important role that you play in developing the East African Community. Also, we will give an in-depth analysis of the training and management sector, team building and corporate development amongst others that the company upholds by availing tailor-made opportunities to promote high quality competitive services that you offer to esteemed clientele, thus your massive contribution to the development of the economy locally, regionally and internationally. We propose to run a two pages editorial in the issue that will underscore various aspects of GT Bank in relation to the support systems that you have put in place to see to the thriving of the Financial sector it is proving to take center stage in driving the African economy. Benefits to GT Bank: 1) Brand Enhancement. 2) Customer loyalty strategy. 3) Promote corporate identity. 4) Increase the product market share Moreover, the editorial will also underscore the important role that you have played as the Managing Director of GT Bank in spearheading the operations and functionality of the company in your capacity hence ensuring its successful existence in the regional market, therefore, your contribution to the development of the economy shall be brought to perspective through this unique opportunity. We have a wide readership all over the world and has a great web presence to readers who would like to access socio-economic and leisure information in Africa. The Magazine is distributed in Kenya, Uganda, Tanzania,Rwanda, Zimbabwe,Zambia, Malawi, Namibia,Botswana,South Africa, Southern Sudan, Swaziland and Lesotho through various agencies and national Embassies. The aim of the Supplement is to Increase brand recognition and awareness, maximize your market exposure and reach key decision-makers,strengthen existing business relationship and Network with new and existing clients and potential investors locally, and regionally in East Africa in tandem with your line of operation. I would also request for a support in the form of an advert in our publication at a very convenient and negotiable price so as to help cover for the printing and freight costs.The advert and the free editorial shall be circulated around our relatively large coverage platform including the East African Community. Both the advert and the editorial shall also appear on both our online and print version of the publication and shall be circulated around various social media platforms to ensure that we ensure maximum exposure to as many of your targeted clientele as possible and at no extra cost. I wait to hear from you shortly to map the way forward. Regards, Alex Owuor, Country Manager, The Economic Insight Magazine, P.o Box 75092-00200 Nairobi, Tel;(+254) 20 261 5539, 020 221 1360, Cell;(+254) 723 240 343, Email; theeconomicinsightkenya@live.com, Website; www.theeconomicinsight.com
Adekunle Sonola
The point is that Government intervention has to compliment the banks in ensuring a very vibrant economy and growth in personal wealth which ultimately improves consumption in that environment and reduces cost of credit
Adekunle Sonola
Thank you Damaris...that is a very good question...SMEs actually are the bedrock of every economy
Adekunle Sonola
SMEs is the sector where wealth is created. and the one that contributes most to poverty eradication.
Conrad Wambugu
Morning Sir, how are you different compared with your peers in terms of the East Africa Strategy, (Both Kenya and Nigeria (assumingly) have relatively high interest rates) and what advantage does GT have in linking west to east and vice versa
Adekunle Sonola
In my view, what is needed more in the SME sector is education...training...financial education...we cannot hide from the fact that there is a significant level of failure within the first 3 years of existence of a business...therefore critically capacity building and institutional support will ensure an acceleration of the growth of the SME market.
Charles Amanga
At the moment the Country Security has sent cold feelings within the investment circles. To what extend could this influence the cost of credit?
Adekunle Sonola
And we must commend the banking industry in Kenya...as acknowledged by the World Bank study, as having the highest level of lending to SMEs in Africa...we can see that in Kenya we are doing some very good things already
Adekunle Sonola
Conrad thank you for the question.
Adekunle Sonola
The issue is the effect that political instability or terrorism will have on economic activity...if it leads to retrenchment or layoffs, somebody's ability to service the facility will be affected
Peter Loolio
Good morning everyone, I would like to be given more info on the credit information sharing...most people are getting direct credit information from saccos than from banks...how are we gonna merge this
Adekunle Sonola
and every credit default by a customer has the following effects...
Adekunle Sonola
1. it increases the cost of credit to the system...generally
Adekunle Sonola
2. it makes the banks more cautious in their approach to lending
Adekunle Sonola
the caution manifests in even more detailed evaluation of credit applications and assessment of the impact of future shocks on businesses and individuals
Conrad Wambugu
Are bankers all the same? What can we learn from the Nigerian Banker and most importantly what kind of discussion did you NOT find after taking office at GT Kenya? Whay conversation are we missing that our west bankers have?
Adekunle Sonola
therefore there a real cost associated with such risks
Chat Admin
@Alex Awuor we have seen your request and Nuru Mugambi of Kenya Bankers Association will get back to you.
Conrad Karume
Thank you Sir, well answered.
Adekunle Sonola
Charles Amanga...thank you...ultimately i believe the security challenges are transient, in the life of any country come up from time to time...so the international community will evaluate the likely long term impact, if any, and subsequently determine the cost of credit to that country
Conrad Wambugu
Finally, Nigeria just by going on today's paper has a robust Public Private Partnership (PPP) body
Conrad Wambugu
Finally, Nigeria just by going on today's paper has a robust Public Private Partnership (PPP) body. What do you see in the EAC environment and how is GT Kenya going to bring investment and thereby growing GT Kenya itself?
Adekunle Sonola
Wambugu...Kenya has a highly developed banking market...sophisticated and fairly lower risks when compared to other african markets. MPESA is a world-class example of innovation from the Kenyan banking market. And the statistics about financial inclusion in Kenya also points to the stellar work already being done by banks in Kenya.
Conrad Wambugu
Thank You Sir
Adekunle Sonola
Peter...ultimately to have a vibrant credit market, and to correctly evaluate individual affordability, there would have to be a one stop shop for credit information...
Adekunle Sonola
...this would allow all participants in the financial industry to make the right decision, and ultimately, reduce the cost of default
Adekunle Sonola
Lucy...i understand your perspective on education...
Adekunle Sonola
...however, we all have a responsibility as well.
Conrad Wambugu
We see South African Bank supporting the banking sector as seen with CFC Bank which had the lowest interest rate for a long time/ What can we expect from GT Bank and its Kenyan arm
Adekunle Sonola
to ensure that they can afford the credit they are requesting...to ensure that they will put the credit towards good, productive use and not lifestyle consumption
Adekunle Sonola
and borrowers should approach the system with transparency...not hide their debt obligations in an effort to access more credit
Chat Admin
Good morning all, we are about to wrap up and see that there are still many questions coming in which is great.
Lucy Matito
Thank you sir. Well answered
Chat Admin
The Kenya Bankers Association has developed and launched their Cost of Credit microsite which contains a lot of information on the topic of the cost of credit.
Adekunle Sonola
As we start to wrap up. I would like to thank everybody that joined us today for all the thought provoking questions that you have asked...and as we keep the debate going.
Chat Admin
You can visit this site at http://www.costofcredit.co.ke and also download the Android app to calculate the cost of credit
Adekunle Sonola
My parting shot is that the industry is doing the best it can under the circumstances to reduce the cost of credit. The average cost of credit in Kenya was about 22 percent in the year 2012...today it has come down to less than 15 percent as at June 2014
Adekunle Sonola
as we continue to grow the economy and address the risks we talked about today, and improve living standards, we will continue to see the appropriate lending rates in the market.
Elizabeth Muguiyi
Mr. Sonala, thank you for your great insights, would you be available to mentor people in the Banking industry such as myself?
Adekunle Sonola
Thank you and have a wonderful weekend.
Chat Admin
Thank you Mr Sonola for that informative and active chat session.
George mathui
This was a superb interactive session. Thank you Kunle and have a wonderful weekend too
Conrad Karume
Thank you for hosting us Mr Sonola, we look forward to the day the percentage Cost of Credit will drop to single figures.
Chat Admin
Thank you to all the participants for your great questions. The next chat session will be Friday 26th September where the topic will be Market Competition and the Impact on Cost of Credit.
Chat Admin
Our host will be Mr John Gachora CEO of NIC Bank.
Chat Admin
We look forward to seeing you all online once again.
Lucy Matito
@Chat Admin i think this session time should be increased as the debate seems to be very weighty. Thanks for this initiative though very infromative.
Chat Admin
A transcript and podcast of this chat sessions will be available online shortly.
Chat Admin
All that now remains is for me to wish you all a good day and a relaxing weekend.
Chat Admin
Hi Lucy, we encourage people to log on early and post their questions to enable us to get going from 10am.
nuru mugambi
Alex Owuor please email me at nmugambi@kba.co.ke and we can facilitate an interview