The weakening of the shilling lifted Absa Bank Kenya’s debt load by Sh4.2 billion to Sh24.02 billion in the 12 months to December 2023, despite the lender not making new foreign currency borrowings in the period.
The lender says in its annual report for 2023 that the foreign currency impact on its debt stood at Sh4.51 billion, up from Sh837 million in 2022.
The shilling depreciated by 21 per cent against the dollar in 2023 —moving from Sh123.37 to Sh156.46 per dollar— hurting those with dollar-denominated liabilities and rewarding those holding assets in US currency.
For the bank, the weakening of the shilling has therefore had the effect of raising financing costs and eating into the bottom line, and also increasing its liabilities.
“During the year, the effective interest on the borrowing recorded an interest expense was Sh1.86 billion (2022: Sh483 million),” said Absa Kenya in the annual report.
The bulk of Absa Kenya’s borrowings are from its South African parent Absa Group Limited, with the latest being a 10-year subordinated loan of $50 million (Sh6.63 billion) taken up in December 2022.
This facility’s interest, which is paid quarterly, is set at the benchmark US Secured Overnight Financing Rate (SOFR) plus 4.72 percentage points and resets every three months.
Other foreign currency borrowings from the parent comprise a 10-year, $50 million facility contracted in February 2020, and another 10-year, $25 million (Sh3.31 billion) loan taken up in October 2019. Both these facilities are charged interest at SOFR plus 2.7 percentage points, also paid on quarterly basis.
Absa Kenya also holds a $10 million (Sh1.32 billion) loan from Eco-Business Fund South Africa, obtained in December 2022 and maturing in December 2027, at a rate of SOFR plus 2.8 percentage points.
The bank’s local currency borrowings comprise two facilities from the Kenya Mortgage Refinance Company (KMRC) totalling Sh3 billion that attract a fixed interest charge of five per cent. The two facilities were contracted in September 2022 and mature in September 2031 (Sh1 billion) and September 2035 (Sh2 billion).
The Sh16.6 billion subordinate loans from the parent were taken up to boost the lender’s capital and meet strategic investments in the local market. By the end of last year, Absa Bank Kenya’s capital adequacy ratio (total capital/total risk weighted assets) stood at 18.1 per cent against a statutory minimum of 14.5 per cent.
