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Kenyan banks borrow Sh36b from overseas to fund SMEs

KCB received Sh10.1 billion credit from the Africa Development Bank expected to be used to facilitate onward lending to Micro, Small and Medium Enterprises (MSMEs)

NAIROBI, Kenya, May 7 – Kenyan Banks have turned to external funding as they seek to address the asset-liability mismatch.

In the latest report by Cytonn Investments, banks received about Sh36 billion in April from international institutions due to the time horizon mismatch between issued loans that tend to be relatively long-term and deposits that tend to be relatively short term.

KCB received Sh10.1 billion credit from the Africa Development Bank expected to be used to facilitate onward lending to Micro, Small and Medium Enterprises (MSMEs) as well as issuing finance to deserving corporate entities across the agriculture value chain.

Stanbic Bank Kenya has also raised a Sh10 billion dual-tranche syndicated loan that was coordinated by UAE-based bank Mashreq bank.

The loan will have a two and three-year maturity for the two tranches. The proceeds of the loan will be devoted towards new lending and general corporate purposes.

“The syndicated loan involved 14 financial institutions and was two and a half times oversubscribed,” Cytonn report indicates.

Victoria Commercial Bank (VCB) also received Sh500 million of subordinated tier II compliant loan from SwedFund, a Swedish development finance institution.

The loan is expected to shore up the bank’s capital position and thereby improve the company’s lending capacity to Small and Medium Enterprises (SMEs).

Co-operative Bank of Kenya also received Sh15.2 billion from the International Finance Corporation (IFC).

“Issues such as that of the International Finance Corporation to Co-operative Bank were priced at the London Inter-Bank Offered Rate (LIBOR), plus an unspecified premium. The current 12-month LIBOR rate is at 2.8 percent,” the report indicates.

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Latest data from the Kenya National Bureau of Statistics indicate that average deposit rates increased to 8.2 percent in December 2017 from 7.3 percent in December 2016, while commercial bank average lending rates remained unchanged at 13.6 percent in December 2017.

Total domestic credit rose by 7.9 percent compared to 6.4 percent in 2016, primarily due to a 12.1 percent growth in credit to the national government, compared to the decline in private sector credit growth to 2.4 percent from 4.1 percent in 2016, indicating increased lending to the government.

The slower growth in the financial and insurance sector is mainly attributed to effects of the interest rate cap, eroding interest income earned by banks in 2017.

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