A Co-operative Bank banking hall. FILE PHOTO | NMG
Summary
- Money meant to strengthen the lender’s funding to under-served small-scale enterprises.
- Kenyan banks have in recent years taken substantial loans from global funds such as the IFC, European Investment Bank (EIB) and Agence Française de Développement (AFD), attracted by relatively more favourable terms of debts including lower interest rates and longer maturity
Co-operative Bank is set to take a $150 million (Sh15.2 billion)
seven-year loan from the International Finance Corporation (IFC) for
onward lending to small firms.
The global lender, part
of the World Bank Group, disclosed the proposed loan to the Nairobi
Securities Exchange-listed firm on Monday.
“The project
comprises of a senior loan… to help strengthen the bank’s long-term
funding position and enable it to expand its lending operations to the
under-served micro small and medium enterprises (MSMEs) segment in
Kenya,” IFC says in the disclosure statement.
Kenyan
banks have in recent years taken substantial loans from global funds
such as the IFC, European Investment Bank (EIB) and Agence Française de
Développement (AFD), attracted by relatively more favourable terms of
debts including lower interest rates and longer maturity.
KCB and Equity are among banks that have borrowed from international financiers to fund their long-term lending business.
The
lenders have complained of a mismatch between long-term loans and
deposits that are mostly short term in nature, exposing a gap that they
have chosen to fill by credit from the institutions which charge
single-digit interest rates.
International borrowing
has also gained ground after the local corporate bond market was shaken
by the collapse of Chase Bank and Imperial Bank which owe bondholders
nearly Sh10 billion excluding interest.
IFC
did not say what interest rate it will charge on the Co-op Bank loan
but it has priced previous similar facilities to the lender at the
London Inter-bank Offered Rate (Libor), a global benchmark, plus an
unspecified premium. The 12-month Libor rate, for instance, stood at 2.4
per cent on Tuesday.
A weaker shilling is one of the
major risks facing banks borrowing from international markets where the
loans are denominated in hard currencies such as the dollar and euro.
The
IFC says the new loan to Co-op Bank will help it meet its social
investment goals of expanding credit to SMEs in the agricultural,
manufacturing and trade sectors.
The financier says Co-op Bank has the scale and distribution network to disburse loans to SMEs across the country.
The bank has 149 branches and serves some 6.5 million customers.
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