Big bank employees took out new loans at a faster rate than managers and other borrowers in the first half of the year to June 2024, as friendly borrowing rates protected them from the highest market rates in 18 years, an analysis showed.
An analysis of the financial results of the country’s nine largest banks showed that the staff loan portfolio grew by 5.44 percent or Sh4.47 billion to Sh86.58 billion in the period under review, recovering from a 1.8 percent decline in the previous corresponding period last year.
The 5.44 per cent growth means that employees of the major banks – KCB, Equity, Co-operative Bank Kenya, NCBA, Stanbic Bank, Standard Chartered Bank Kenya, Absa Bank Kenya, DTB and I&M – were taking out new loans at a faster pace than directors, shareholders, colleagues and other borrowers who are not insulated from rising interest rates.
This is the first time in at least four years that the employee loan book has outpaced other categories in terms of growth, with interest rates on many loans rising to more than 20 percent.
This came after the Central Bank of Kenya raised its benchmark lending rate four times between March 2023 and February 2024.
Banks typically offer their employees loans at below-market rates as part of a benefits package, which also includes pension, wellness and medical insurance.
For example, Equity Group revealed that it was lending to employees at an average interest rate of between six and ten percent per annum by the end of 2023, more than half the maximum interest rate of 26.74 percent it was charging customers as of February this year.
Higher interest rates have discouraged borrowers from extending new loans. This, coupled with the revaluation of dollar-denominated loans as the shilling appreciated against the dollar, has contributed to a slowdown in the growth of loans and advances to customers even as loans to employees have grown faster.
During the first half of the year ended June 2024, the directors, shareholders and partners’ loan book declined by 9.6 per cent or Sh6.69 billion to Sh62.76 billion, as loans to other borrowers – disclosed under loans and advances to customers – grew by 1.8 per cent to Sh3.674 trillion.
The 1.8 percent or Sh66.3 billion growth in loans and advances to customers for the nine lenders was slower than the 21.9 percent or Sh664.8 billion growth recorded by the same banks in the same period last year.
I&M saw the fastest increases in internal loans taken by employees as the figure jumped 23.7 per cent to Sh3.6 billion, followed by DTB where it jumped 20.9 per cent to Sh2.05 billion.
NCBA staff increased their borrowing by 14.6 percent to Sh7.6 billion, while equity staff increased their credit appetite by 12.7 percent to Sh17.26 billion.
In terms of the value of internal loans owed to employees, KCB had the highest value at Sh22.36 billion, although the figure grew by only 1.2 per cent.
Only Stanbic Bank Kenya employees bucked the trend, with income falling 5.7 percent to Sh3.86 billion.
Under the Central Bank of Kuwait Law and prudential guidelines set by the central bank, the regulator allows insider lending but with caveats to prevent abuse. Banks are allowed to lend to the CEO or board members with the approval of the board.
Loans granted to the CEO or members of the board of directors must be on terms similar to those offered to ordinary customers, and the bank must notify the Central Bank of Kuwait of each approval. Default for three months will result in these persons being disqualified from holding office.
The prudential guidelines state in part that “loans and other facilities provided to members of staff only shall be within schemes approved by the Board of Directors.”
In the year ending December 2023, three banks violated the Banking Act by breaching the 20% cap on insider borrowers of core capital. Two other banks breached the overall 100% cap on insider borrowers of core capital.