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Co-op Bank struggles to recover Sh287m public loan

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City residents walk past Co-operative Bank branch on Kenyatta Avenue. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • The latest annual debt report for the period ended June 2021 shows Co-op Bank did not service the loan in the year through June 2021.
  • During the year under review, Equity Bank repaid Sh18.46 million on its on-lent facility, while Kenya’s largest micro-lender, KWFT, wired Sh44.75 million to the Treasury.
  • The Treasury has embarked on developing a strategy to address entrenched governance malpractices and deepening cash flow challenges amongst state-owned enterprises.

The Co-operative Bank of Kenya is struggling to recover part of Sh287.42 million loans it received from the Treasury for on-lending to government projects, according to the latest disclosures on the country’s debt status.

The bank, Kenya’s fourth-largest by market share, was among six privately-owned lenders which were listed by the Treasury for owing the State nearly Sh1.08 billion in on-lent loans at the end of June 2020.

Others were Equity Bank Kenya, whose outstanding loan stood at Sh493.47 million at the time, and four deposit-taking micro-financiers — Kenya Women Finance Trust (Sh100.56 million), Faulu Kenya (Sh98.15 million), SMEP (Sh49.40 million), and Rafiki (Sh46.40 million).

The latest annual debt report for the period ended June 2021 shows Co-op Bank did not service the loan in the year through June 2021, the only one amongst the six privately-owned financial institutions with on-lent credit from the Treasury.

“The Co-operative Bank of Kenya (Co-op) … (is) consistent in loan repayments, therefore reducing arrears. However, Co-op Bank has indicated that various co-operative societies are in a moribund state thereby rendering the inability to repay some of the on-lent loans,” the Treasury says in the annual debt report.

The report does not specify the government-based SACCOs which the Treasury borrowed funds on their behalf through Co-op Bank and which were now struggling to repay.

Government-based SACCOs controlled Sh233.38 billion, or 37.18 percent, of the Sh627.68 billion total assets held by the deposit-taking SACCOs sector last year, according to industry statistics.

The Treasury usually borrow funds from foreign and domestic lenders for on-lending to State-owned enterprises (SOEs) which cannot get funding on their own because of their weak financial positions but play a strategic role in the economy.

However, the Treasury is required to ensure the projects funded through on-lent credit “hold a top-level priority on the development agenda of the government”.

Nearly Sh44.26 billion or 4.8 percent of Sh921.93 billion on-lent loans are in the finance sector, the debt report shows.

About Sh125 million in on-lent loans to the sector was in arrears at the end of June.

During the year under review, Equity Bank repaid Sh18.46 million on its on-lent facility, while Kenya’s largest micro-lender, KWFT, wired Sh44.75 million to the Treasury.

Faulu Kenya repaid Sh43.68 million, SMEP (Sh22.23 million) and Rafiki Sh20.65 million.

The five privately-owned financial institutions — which held Sh1.08 billion in on-lent loans from the Treasury at the end of June 2020 — repaid Sh149.77 million in the year ended June 2021.

The Treasury says it received Sh8.35 billion from on-lent facilities, with electricity producer KenGen — which held Sh115.61 billion in on-lent loans the previous year— accounting for 92.91 percent or Sh7.76 billion of the repayments.

More than half of the on-lent loans went into supporting transport and infrastructure, accounting for Sh478.32 billion or 51.88 percent of the total Sh921.93 billion at the end of last fiscal year in June.

On-lent loans in energy amounted to Sh218.74 billion, followed by water and irrigation (Sh169.44 billion) and finance (Sh44.26 billion).

The Treasury in the past said that more than half of Kenya’s 247 parastatals posted either a deficit or a loss in the last financial year that ended in June 2020.

The majority of the poorly managed parastatals reporting losses or deficits in their budgets have over the years turned to commercial loans on the strength that they will be bailed out by taxpayers, in addition to using assets such as land as security.

The Treasury has embarked on developing a strategy to address entrenched governance malpractices and deepening cash flow challenges amongst state-owned enterprises.

“An in-depth and forward-looking financial evaluation of the top SOEs [State-owned enterprises] representing largest financial and fiscal risks and a framework for deciding on interventions, and reforms to rationalise the SOE sector is ongoing,” the Treasury wrote in the report to the National Assembly on April 29.

“The National Treasury is confident that the strategy, together with ongoing reforms will address the current challenges of the SOE sector and their implementation will bear the good fruit of development.”

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