Botswana-based lender Letshego Holdings Ltd (LHL) breached the terms of a Sh3.9 billion ($30.49 million) loan for its Kenya and Uganda subsidiaries in the wake of defaults in the region’s banking industry.
Disclosures in the firm’s Annual report show that Kenya operations posted a negative return on assets last year against terms of its loans that demands a positive return.
The Uganda and Kenya subsidiaries had a share on non-performing loans that surpassed the ratios agreed with lenders who offered Letshego cash for onward lending.
The annual report did not disclose the agreed of share of non-performing loans that triggered the breaches.
Rising lending rates and a soft economy—which has hit profits, froze pay and delivered job losses—has led to a surge in bad debts.
Central Bank of Kenya (CBK) data show that loans defaults in Kenya hit an 18-year high of 16.1 percent of loans equivalent to Sh641 billion in June.
Botswana-based lender does not collect deposits in Kenya and Uganda and relies on borrowings from third parties for onward lending to homes and businesses.
The debt covenant breaches had implications on outstanding loans amounting to approximately P2.9 billion ($210.95 million) at the end of December.
In light of the possible implication of this performance and the existence of debt covenant breaches on the Group’s liquidity and funding pipeline, management assessed the group’s ability to continue as a going concern,” the lender said in its newly published annual report for 2023.
The breaches of the covenants on Letshego’s units in Kenya and Uganda were for loans of Sh3.26 billion ($25.37 million) and Sh658.77 million ($5.12 million), respectively.
The lender however says it has put in plans to reverse the negative return and cut the bad loans after obtaining letters 'letters of no action' from its creditors.
This means that the lenders have committed not to take action against Letshego Holdings for breach of the loan agreements.
