KCB to be City Hall’s main banker over 8-year loan term


City Hall, Nairobi. KCB will be City Hall’s primary banker for eight years. PHOTO | FILE

Kenya Commercial Bank will be City Hall’s primary banker for the eight years repayment period of a Sh5 billion loan that the lender bought out from Equity Bank, fresh details of the terms attached to the debt have showed.

All City Hall revenues (rates, charges, fees and any other receivables) will be deposited with the bank during this period.

Details of the loan agreement also show that City Hall paid KCB Sh33 million as a buy-out fee for the remainder of the Sh5 billion loan that it had originally taken from Equity Bank in 2011.

The fee is equivalent to one per cent of the outstanding debt. The Sh3.3 billion loan was transferred in September as City Hall faced threat of legal action by Equity Bank if it failed to pay the full amount as a lumpsum.

The loan agreement also shows that the city government failed to secure a fixed interest repayment rate, and will instead pay a minimum 13 per cent interest that could rise should the government-set Kenya Banks’ Reference Rate (KBBR) rise above 17 per cent. This is the rate, derived from Treasury Bill averages and the Central Bank Rate, that guides banks in determining interest rates to charge on loans.

“Interest Rate” shall mean the prevailing Kenya shilling base lending rate of the Bank from time to time less four per cent per annum subject to a minimum rate of 13 per cent per annum,” says the agreement signed between City Hall and KCB.

READ: City Hall transfers Sh5bn Equity Bank loan to KCB

KCB also negotiated strict timelines within which City Hall should supply it with annual budget statements and medium debt strategy approved by the County Assembly as it aims to keep a keen eye on changes that may occasion default.

In March, Equity Bank gave City Hall two weeks to repay the full amount owed failure which the county government would be taken to court and the county’s file forwarded to the Credit Reference Bureau.

Equity was only willing to extend this period if the county undertook to have the facility bought out by another bank.

“ In the event that the county government desires that the loan be taken over by  another institution, the bank will ensure an expeditious smooth transition of the same,” the bank said in a terse letter written to the county.