Standard Chartered Bank Kenya raised its net lending to its affiliates in foreign markets by 31.6 percent to Sh83.4 billion in the year ended December, expanding its holding of the facilities which are mostly denominated in US dollars.
The bank’s net exposure to other businesses owned by its London-based parent firm Standard Chartered Plc stood at Sh63.3 billion a year earlier.
This amounts to an increase of Sh20 billion in foreign loans, with the institution having the largest lending to affiliates among Nairobi Securities Exchange-listed banks.
StanChart had provided Sh96.1 billion worth of such loans in the review period when it owed Sh12.7 billion to the sister banks, leaving it at a net lending position of Sh83.4 billion.
It had issued Sh71.9 billion of loans to the entities a year earlier when it owed them Sh9.6 billion, resulting in net lending of Sh63.3 billion to the affiliates.
The transactions with the sister firms comprise the third largest items in StanChart’s asset base after loans to ordinary customers (Sh139.4 billion) and government securities (Sh104.7 billion).
Banks with common majority shareholders often collaborate and may lend to and borrow from one another. StanChart has scores of affiliates operating in Africa, Europe, the Middle East, Asia and the US.
Other lenders that have implemented transactions similar to those of StanChart are Stanbic Holdings and Absa Bank Kenya.
Banks are required to report the aggregate exposure to and transactions with related parties to mitigate potential risk from insider dealings.
In a few instances, Kenyan banks have made provisions of millions of shillings to cover actual or potential default by their counterparties.
Stanbic Holdings, for instance, in 2021 disclosed that it had made provisions for Sh286.3 million worth of deposits in foreign banks, which it is related to through their parent company Standard Bank of South Africa.
The amounts have been unpaid for years and are owed by Stanbic Bank Tanzania, among other related parties.
Available disclosures
StanChart’s gross foreign exposure of Sh71.9 billion in 2021 was net of a write-off of Sh13.6 million, according to the latest available disclosures.
The Central Bank of Kenya (CBK) prudential guidelines require bank boards of directors to approve all loans to related or connected parties.
The terms of the transactions StanChart has with its affiliate firms have not been disclosed but the company is expected to treat the sister companies the same way it deals with other customers.
The CBK guidelines stipulate loans to connected parties should be on market terms and should not be more favourable with regard to amount, maturity, rate and collateral than those provided to other customers.
Transactions with foreign-related banks are among the insider dealings that the regulator keeps an eye on.
