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KCB cedes 30pc share of G-2-G oil payments
Kenya Commercial bank (KCB) Group CEO Paul Russo makes his remarks during the banks Financial Year (FY) 2024 Results announcement at Radisson Blu Hotel on March 12, 2025.
Photo credit: Francis Nderitu | Nation Media Group
KCB Group has ceded a 30 percent share of payments made under the government-to-government (G-2-G) oil deal as part of a risk management strategy.
The bank has disclosed that it had been handling all payments under the deal, which saw it issue letters of credit (LCs) supporting fuel imports.
Under the deal, oil marketing companies (OMCs) deposited Kenya shillings in equivalent payments to KCB, while the bank was tasked with sourcing for dollars to meet payments to shippers after six months.
Kenya entered the deal with Saudi Aramco, Abu Dhabi National Oil Company, and Emirates National Oil Company in March 2023 designed to manage demand for dollars, switching from an open tender system in which local companies bid to import oil every month.
The deal helped prevent a fuel crisis by allowing OMCs to import fuel from the Gulf States on credit amid a hard currency shortage.
The decision by KCB to cede its market share under the G-2-G deal has slashed customer deposits by 18.4 percent from Sh1.69 trillion to Sh1.38 trillion between December 2023 and December 2024—reflecting the lower shilling deposits by OMCs.
“The other banks did not participate in the first instance, we were carrying 100 percent of the deal,” said KCB chief executive Paul Russo. “It is standard risk management (to cut our exposure). The scheme has been profitable, but we have decided to only defend 70 percent of the deal. We took the initial risk and saw liquidity in our books.”
The government-to-government deal has also increased the pool of dollars sitting in commercial banks with lenders ramping up their sourcing of hard currency to meet payments for oil supplies.
Banks issuing letters of credit are required to begin accumulating dollars three months after the bill of lading date which confirms the dispatch of fuel consignments by the exporter.
The accumulation of dollars continues until the 180th day after which the exporter is directly paid by an international bank confirming the LC. The lender then seeks reimbursement from the domestic LC-issuing bank.
Commercial banks involved in the deal have, therefore, had to bolster their dollar holdings to meet payments.
The government extended the fuel import deal in December to meet the volumes of oil negotiated under the arrangement.
The timelines of the extension were, however, not disclosed.
Mr Russo has lauded the deal as an innovative solution to the hard currency crisis witnessed in 2023 and 2024, respectively, even as he said other commercial banks were initially hesitant to join the pact.
The KCB Group CEO said the deal has also been crucial in enhancing the lender’s relationship with OMCs having controlled a lesser share of 45 percent in the prior open tendering system for oil importation.
“I thought other banks were waiting so when we were under pressure to buy dollars, they would make money,” he added.
“The window has given us the opportunity to strengthen our relationship with the OMCs.”
