Equity accused of raising interest on council loan
City Hall, Nairobi. Parliament’s Local Authorities and Funds Accounts Committee, which is investigating a Sh5 billion loan to the City Council of Nairobi, has ended its sittings to compile its report on the matter. Photo/SALATON NJAU
What you need to know:
MPs investigating the loan questioned why the bank had varied the loan rate from 10 to 24 per cent, claiming this was contrary to the agreement.
Members of the Local Authorities and Funds Accounts Committee were also concerned that the bank charged City Hall interest rate on its overdrawn current account while failing to pay interest on deposits.
The bank said the escrow account was supposed to act as a security for the loan, having acted as a buffer in case of default and that it was not obligated to pay interest on the same.
A Parliamentary committee Wednesday said that Equity Bank had scaled up interest on a controversial Sh5 billion loan to the City Council of Nairobi by 14 percentage points while failing to pay interest on council deposits.
MPs investigating the loan questioned why the bank had varied the loan rate from 10 to 24 per cent, claiming this was contrary to the agreement.
Members of the Local Authorities and Funds Accounts Committee were also concerned that the bank charged City Hall interest rate on its overdrawn current account while failing to pay interest on deposits.
John Njenga, Equity Bank’s head of legal services, defended the deal saying the agreement was “client driven”.
He told MPs that the council was required to build a maximum of Sh500 million in the escrow account monthly based on its daily contributions to cater for interest and employee salaries.
But Limuru MP Peter Mwathi demanded to know why the bank could not pay interest for deposits exceeding Sh500 million.
“We have been told by the Auditor-General that there are instances the council built its account to Sh900 million. Why did you not pay interest for the excess collections?” Mr Mwathi asked.
He sought to know if those who negotiated the loan deliberately refused to demand for interest for excess deposits “because of vested interests”.
Nyakach MP Pollyns Ochieng’ warned the bank of a possible demand for payment of the accrued interest should conciliation by the Auditor-General reveal excessive deposits on the escrow account.
The bank said the escrow account was supposed to act as a security for the loan, having acted as a buffer in case of default and that it was not obligated to pay interest on the same.
“There is no single day that the council had operated above its current account. They have been running on overdrafts. In fact we have assisted the council to stay afloat in the interest of city residents,” said Mr Njenga.
Former Town Clerk Philip Kisia said the drafting, signing and disbursement of the Sh5 billion loan was negotiated in the best interest of the public.
“There was no single day the council had excess liquidity,” he said.
Mr Kisia said from April to December, the council hardly collected Sh400 monthly against a salary demand of Sh500 million.
“The council operated from hand to mouth. The Bank calculated interest on account of what was overdrawn on daily basis. We never negotiated for interest on deposits over and above what we agreed for the escrow account,” said the former Town Clerk.
