KCB banking hall. The bank has bought out a Sh5 billion loan that Equity had advanced to cash-strapped City Hall. Photo/FILE
What you need to know:
KCB won a three-horse race of banks that were fighting to snatch the loan offered to Nairobi City County by slashing the lending rate, lengthening maturity of the debt and giving a six-month grace repayment period.
KCB beat other rivals National Bank and Co-operative to clinch the deal after Governor Evans Kidero picked the regional lender for putting in the cheapest bid.
It comes as a big blow to Equity Bank which had started to make inroads into the corporate lending market, bagging big ticket deals such as loaning Sh5.6 billion to Kenya Power in 2012 and Sh1.5 billion to Rift Valley Railways.
KCB has scored a major coup against close rival Equity Bank by buying out a Sh5 billion loan that the lender had advanced to cash-strapped City Hall at lucrative terms.
KCB won a three-horse race of banks that were fighting to snatch the loan offered to Nairobi City County by slashing the lending rate, lengthening maturity of the debt and giving a six-month grace repayment period.
“The County Executive Committee resolved to assign the loan facility to KCB at the offered rates and increase the facility to Sh4 billion by requesting them for an increase of Sh700 million for purposes of financing our working capital requirements,” read one of the resolutions approved last week by the Nairobi City County Assembly.
Kenya’s most profitable and largest lender, KCB, sweetened the deal by taking the Equity Bank loan at an interest rate of 13 per cent against the 18.5 per cent charged by its rival, while lengthening the repayment term to eight years.
KCB beat other rivals National Bank and Co-operative to clinch the deal after Governor Evans Kidero picked the regional lender for putting in the cheapest bid.
The prized catch will also see KCB take over revenue collection for the Nairobi County government by deploying an electronic payment solution at City Hall as well as through its branch network.
“As part of the consideration on our part, allow KCB to collect revenues on behalf of City Hall and their branches within the county,” read another resolution by the Nairobi County Assembly.
KCB will acquire the outstanding loan balance of Sh3.3 billion and further advance a Sh700 million credit line to City Hall – growing its loan book by Sh4 billion at one go.
Nairobi city
The deal, approved by the Nairobi City county assembly, locks KCB and Equity in a fresh round of battles for market share in Kenya.
The transfer of the loan to KCB from Equity is part of a strategy by the governor to reduce expenses for the cash strapped county indebted to the tune of Sh43.99 billion as at August last year.
It comes as a big blow to Equity Bank which had started to make inroads into the corporate lending market, bagging big ticket deals such as loaning Sh5.6 billion to Kenya Power in 2012 and Sh1.5 billion to Rift Valley Railways.
The loan sale to KCB comes a year after the anti-corruption agency and a Parliamentary team investigated the procurement and use of the Sh5 billion loan by Equity Bank.
The departmental committee on Local Authorities and Funds Accounts concluded the loan facility was irregularly acquired and accused the former City Hall officials of flouting financial regulations by signing the deal without proper approval.
The defunct City Council of Nairobi signed an agreement with Equity Bank on March 30, 2011 for a Sh5 billion credit facility repayable on a quarterly basis over 60 months— to help meet its statutory obligations such as workers’ pension, income tax, hospital insurance.
According to documents tabled in the county assembly, Equity initially charged a 10 per cent interest rate but later raised the cost to 18.5 per cent.
The high cost of the loan has seen City Hall default the monthly payments —falling in arrears of Sh978.1 million — forcing it to come up with a strategy of renegotiating the loan.
“Attempts to get the bank (Equity) to review the interest rates charged to us and increase of the tenor have not been agreed by the bank (Equity), insisting that we need to settle the arrears first before we can renegotiate.”
Under the new deal with KCB, City Hall will make monthly deductions at the rate of Sh67.2 million.
