IFC to inject Sh4bn into DTB, Chase banks

International Finance Corporation (IFC) is set to invest Sh4 billion in DTB and Chase banks, some of the fastest-growing Kenyan financial institutions.

The World Bank private financing arm is proposing to lend $25 million (Sh2.22 billion) to Chase and $20 million (Sh1.77 billion) to listed Diamond Trust Bank.

The two loans are meant to give the banks access to long-term funds, of which there is scarcity in the local money markets, as well as expand their loan books.

The proposed loan to Chase is further meant to give women-owned businesses easier access to credit.

“The total cost of the project is estimated at $25 million,” said disclosure documents on Chase released by the IFC.

The proposed loan to Diamond Trust Bank will see it increase the bank’s dollar-denominated advances, lending to small and very small businesses and help the bank meet the Central Bank of Kenya’s (CBK) new capital requirements.

“Support DTBK (will help) to continue to meet higher capital adequacy requirements which have been introduced by the Central Bank of Kenya,” said the documents.

The IFC also has a 4.95 per cent stake in the bank.

DTB chief finance officer Alkarim Jiwa said while there is no specific definition for SMEs and very small enterprises (VSE), both tend to share the same characteristics of being family-controlled enterprises in industries such as retail, trade and manufacturing.

“They (VSE) are typically private companies and typically a loan is for Sh4 million,” said Mr Jiwa, adding that loans to SMEs and mid-size enterprises are much larger.

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The IFC has also proposed to advance NIC Bank Sh4.8 billion. NIC, like its peers, said it would increase dollar-denominated loans as well as boost its capital base with proceeds through the IFC loan.

Analysts said as banks increase borrowing from long-term lenders such as the IFC at lower rates, they also increase their lending to projects that require long-dated loans.

Samuel Oyier, a research analyst at StratLink Global, said more access to cheaper sources of funds should in the long run bring down the cost of funds.

“We can expect to see trickle-down effects of these less costly funds manifesting in lower interest rates in the commercial bank lending space in the long term, which is a direct function of their source of funding,” said Mr Oyier.

DTB has been a regular borrower from the IFC, having received $50 million in 2013 and $25 million in 2008. Equity, KCB, Housing Finance, NIC and Co-operative Bank have all borrowed from the multilateral lender.

The new capital requirement by the CBK has resulted in banks raising capital through rights issues, private placement, reserves and subordinated loans which can qualify as tier II capital.