Sidian Bank breaches Sh445m loan terms

Sidian Bank chief executive Chege Thumbi. PHOTO | SALATON NJAU 

By VICTOR JUMA

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Summary

• Sidian Bank took a Sh235 million loan from Netherlands-based Oiko Credit and Sh210 million from Paris-based Pamiga Finance SA.
• Institutional investors usually impose conditions, including observance of financial ratios, to ensure that a borrower’s monetary condition does not deteriorate to a level that would cause a default.
• Financiers usually have the right to recall their loans when a breach of covenants occurs.

Sidian Bank breached the terms attached to Sh445 million worth of long-term loans from two international financiers that have given the lender more time to fix the high default rate in its loan book.

The bank, majority owned by Centum Investment

, took a Sh235 million loan from Netherlands-based Oiko Credit and Sh210 million from Paris-based Pamiga Finance SA.

“The loans financial covenants relating to the non-performing loans and operational self-sufficiency ratios were not met as at December 31, 2017,” Centum disclosed in its latest annual report.

“The two lenders, Pamiga and Oiko, have not recalled the loans. The loan is held by Sidian Bank Limited.”

Centum did not specify the terms set by the institutional investors but Sidian has been making losses amid loan defaults. Its stock of gross bad debt stood at Sh2.59 billion in December 2017, representing 22.7 per cent of the Sh11.4 billion loan.

The gross defaults rose to Sh2.99 billion in June, representing 24.3 per cent of Sidian’s total lending of Sh12.28 billion.

READ: Centum pumps Sh1.1 billion into Sidian Bank

Institutional investors usually impose conditions, including observance of financial ratios, to ensure that a borrower’s monetary condition does not deteriorate to a level that would cause a default.

Financiers usually have the right to recall their loans when a breach of covenants occurs.

Sidian told the Business Daily that it has received a waiver of the covenants from the institutional investors but declined to say when these were issued.

“All waivers were granted. As for the date, it is confidential and we would not want to disclose the same,” the bank said.

Centum has invested more than Sh3 billion to acquire a 77.1 per cent stake in Sidian by buying out founder shareholders and participating in new capital injections meant to steady the lender.

The bank is raising another Sh1.5 billion in new capital this year and Centum is providing Sh1.2 billion as its share. Sidian and other smaller lenders have suffered the most from the adoption of more conservative accounting standards and the capping of interest rates.