Guaranty Trust Bank has rejected a Sh33.18 million fine by the Competition Authority of Kenya (CAK) for illegally charging a corporate client interest on a credit facility after failing to agree on renewal terms.
GT Bank had been accused of unconscionable conduct against its customer, ASL Limited, a manufacturing firm that had maintained a credit line with the lender since 2021.
Unconscionable conduct is a business practice that’s unfair and oppressive, taking advantage of a vulnerable consumer without adequate knowledge or bargaining power compared to the seller.
In its ruling on the complaint by ASL, the CAK also ordered the lender to refund ASL Limited Sh13,211,285, being the sum of the fees and charges determined improperly levied.
“GT Bank used unfair tactics and exerted pressure against ASL to accept an unfavourable offer despite ASL’s indication of an impending facility takeover by I&M Bank,” said the regulator in its ruling.
The lender has, however, rejected the decision by the CAK and appealed for a review by the Competition Tribunal.
“The decision to appeal reflects the bank’s view that the authority’s findings are not supported by the facts and evidence presented during the investigation,” it said in a statement Tuesday.
Investigations into GT Bank’s conduct were occasioned by a complaint lodged with the CAK by ASL on October 5, 2024, alleging unfair treatment in the management of and renewal of its credit facilities held with the bank.
The regulator disclosed that ASL had maintained a banking relationship with GT Bank since 2001. In July 2021, ASL secured credit facilities, including overdrafts, letters of credit, guarantees, asset financing, and working capital support. The facilities were secured against the company’s assets and personal guarantees by the directors of ASL.
The facilities were scheduled to expire in May 2022, subject to review and renewal.
In January 2022, ASL submitted a formal request for renewal, within the period prescribed in the agreement.
In its complaint, ASL alleged that despite numerous engagements over several months, GT Bank did not issue a definitive position on the renewal application.
In June 2023, GT Bank offered a three-month extension on the facility for the process to be finalised. ASL was required to provide additional security, among other demands, which it accepted. ASL also accepted other revised requirements, including reducing one trading line from $5.5 million to $3.5 million and retaining cleared collateral.
However, a month later, the bank issued a new offer letter, further reducing the limits by $3 million. ASL requested time to deliberate internally.
Upon concluding that the facility amounts and terms on offer were not agreeable, ASL notified GT of its intention to transfer its facilities to I&M Bank.
On October 31, 2023, ASL received a formal default notice and was charged Sh13.2 million in default interest, allegedly backdated to August 2023, when the renewal process had commenced. To facilitate the takeover by I&M Bank and avert business disruptions, ASL cleared the two overdraft amounts: OD1 Sh417,848,415 and OD2 $197,802.
Following the reporting of the matter to the Authority, but before the start of the investigation, GT Bank offered to refund Sh2.8 million, against the disputed amount of Sh13.2 million. ASL rejected the amount and sought a full refund, arguing that the default interest was unfairly and improperly applied.
GT Bank’s response indicated that the credit facilities were governed by two Letters of Offer issued in July 2021 and October 2021. These agreements permitted variation of interest rates and the charging of default interest.
The bank denied allegations of coercion, asserting that ASL’s failure to execute the July 2023 offer triggered contractual default provisions and that the default interest was not backdated, but applied according to these terms.
Further, the bank described its proposal to refund a portion of the interest as a goodwill gesture arising from a candid error, rather than an admission of liability. It characterized ASL’s demand for full compensation as an unreasonable attempt at unjust enrichment.
