Capital Markets

Swedfund lends Co-op Sh1.6bn for SME loans

COOPBank

Co-operative Bank branch along Haile Selassie Avenue, Nairobi. FILE PHOTO | NMG

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Summary

  • Kenyan and regional based banks have in recent years taken substantial loans for onward-lending from global funds.
  • Co-operative Bank, KCB and Equity are among the lenders that have borrowed from international financiers to fund their long-term lending business.
  • Lenders have previously complained of a mismatch between long-term loans and customer deposits that are mostly short- term, exposing a gap that they have chosen to fill with credit from international institutions.

Co-operative Bank #ticker:COOP has secured a Sh1.6 billion loan from Swedish State-owned investor Swedfund for onward lending to small and medium- sized enterprises (SMEs) in the country.

While announcing the long-term funding, whose interest rate was not disclosed, Swedfund said that the facility would uplift Co-op Bank's lending to the small enterprises who have been most affected by economic disruption from the Covid-19 pandemic.

"In the context of the ongoing Covid-19 pandemic, it is increasingly important that banks and other financial institutions continue to support small and medium-sized enterprises, and hence the entire economies through continued lending," said Swedfund in a statement.

"Co-op Bank’s on-lending to SMEs is welcomed particularly in light of the pandemic and its effects on SMEs and female entrepreneurs."

Kenyan and regional based banks have in recent years taken substantial loans for onward-lending from global funds, including the International Finance Corporation (IFC), European Investment Bank (EIB), Agence Française de Développement (AFD) and the African Development Bank (AfDB), attracted by relatively more favourable terms of debts like lower interest rates and longer maturity tenors.

Co-operative Bank, KCB #ticker:KCB and Equity #ticker:EQTY are among the lenders that have borrowed from international financiers to fund their long-term lending business.

Lenders have previously complained of a mismatch between long-term loans and customer deposits that are mostly short- term, exposing a gap that they have chosen to fill with credit from international institutions that charge single-digit interest rates.

This mismatch has also led many lenders to shun away from issuing long term credit on facilities such as mortgages.

International borrowing has also gained ground after the local corporate bond market was shaken by the collapse of former Chase Bank and Imperial Bank, which owe bondholders nearly Sh10 billion, excluding interest.