Kenya Commercial Bank is expected to conclude in the next two weeks the buyout of a Sh5 billion loan extended to Nairobi County by Equity Bank, in a deal expected to reduce the interest rate burden payable by City Hall.
After the buyout, the county government is expected to repay the loan at an interest rate of 13 per cent, which is less than what it has been paying to Equity.
For most of last year and early this year, Equity was charging City Hall a rate of 18.5 per cent on the loan, although this had come down to 14.7 per cent in May.
“Last week, we were in the final stages of the legal framework. But the principle has already been agreed and we expect the shift in the next two weeks,” said deputy governor Jonathan Mueke.
The bank will also be offered space at City Hall to set up a branch, doing away with the hassle of cash transportation.
“If we can turn our cash office into a banking hall and give it to our banker, then money paid will go directly to the bank instead of putting it into a box to be driven to the bank,” Mr Mueke said.
According to documents that were presented to the County Assembly earlier in the year, KCB will acquire the outstanding loan balance of Sh3.3 billion and further advance a Sh700 million credit line to City Hall. The county will repay the Sh4 billion in eight years.
Under the new deal, KCB will make monthly deductions of Sh67.2 million which compares favourably to a monthly rate of Sh110 million charged by Equity.
KCB is expected to pocket Sh40 million upon signing the deal, being a negotiation fee charged at the rate of one per cent.
City Hall stopped repayment of the loan last year resulting in arrears of nearly Sh1 billion and has only recently resumed making the payments.
“We did not pay our due principal which was due in April last year because we never got the last tranche of LATF (Local Authority Transfer