Parastatals borrowed an extra Sh34.2 billion from commercial banks in the 12 months to October 2023, signalling the growing cash needs of the State-owned enterprises.
Data from the Central Bank of Kenya (CBK) shows that banks had disbursed loans worth Sh107.9 billion to parastatals in the review period.
This is a 46.4 percent increase from a loan portfolio of Sh73.7 billion that the lenders had extended to the State entities a year earlier.
The CBK did not give a breakdown of the lending, including the parastatals that benefited from the borrowing. However, it's likely that the additional Sh34.2 billion borrowed by the State entities was skewed by a handful of big-money loans to a few parastatals as opposed to a sector-wide trend.
For instance, it is during this period that the Kenya National Trading Corporation (KNTC) secured Sh24 billion backing from KCB Bank Kenya to facilitate the firm to import food products duty-free.
KNTC secured the loan in February after the government picked it to import 580,000 metric tonnes of sugar, rice, cooking oil, beans and wheat duty-free as part of short-term plans to ease commodity prices.
Most parastatals are cash-strapped and are, therefore, risky customers for commercial banks to lend to because most of them are not commercially viable and are technically insolvent, weighed down by huge debts.
They thus rely on funding from the government to stay afloat.
It is for this reason that banks had lent only Sh112.9 billion to the public sector – including the 47 county governments – by October, compared to Sh3.81 trillion they had lent to the private sector.
Banks are already struggling with a growing burden of non-performing loans and may, therefore, harbour less appetite for lending to such borrowers considered riskier. The banking sector's bad loans are rising rapidly amid high-interest rates and a struggling economy.
According to CBK data, gross defaults in the banking sector hit Sh634 billion in October 2023 or 15.2 percent of gross loans. This is far higher than the bad debt of Sh504.2 billion in October 2022, which translated to 13.8 percent of gross loans issued by lenders.
In 2022, the CBK reminded banks of the risks of lending to SOEs, observing that in contrast to most private entities, parastatals often borrow to pay for recurrent expenditures such as salaries.
“The SOEs used long-term debt to finance operations expenses rather than investments to generate revenues to service future debt. This limits productivity, capacity, and profitability of SOEs and in turn their viability,” said the CBK.
