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Absa takes Sh2.6bn loan from parent firm to boost capital

Jeremy Awori
Absa Kenya Managing Director Jeremy Awori. PHOTO | DIANA NGILA 

Absa Kenya #ticker:ABSA has taken a Sh2.6 billion loan from its South Africa-based parent company to shore up its capital position.

This marks the latest borrowing from Absa Group. It had provided the Kenyan unit with Sh5.3 billion in March 2015.

The Nairobi Securities Exchange-listed firm now owes the multinational lender a total of nearly Sh7.9 billion.

“The $25 million (Sh2.6 billion) subordinated loan from Absa Group Limited was obtained on October 16, 2019 and has a maturity date of October 16, 2029,” Absa Kenya said in its latest annual report.

“Interest is paid quarterly in arrears at a rate of 2.7 percentage points above USD Libor which re-sets every three months. No collateral is held against the borrowings.”

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The new loan boosted the lender’s tier 2 capital to Sh7.6 billion in the year ended December 2019 compared to Sh5 billion the year before.

The credit line is part of the parent company’s pledge to help the local business to shoulder costs running into billions of shillings incurred when separating from its former majority shareholder, London-based Barclays Plc.

“Our Holding company Absa Group Limited (AGL) will provide capital support to help mitigate the capital and cash flow impact of the separation costs over time,” Absa Kenya said in the report.

The lender reported a three percent net profit growth in the first quarter ended March, weighed down by the separation costs.

Its net profit stood at Sh1.95 billion in the review period compared to Sh1.89 billion a year earlier.

Its cost of rebranding to Absa, captured as exceptional items, increased 2.2 times to Sh552 million.

Absa’s mainstay lending business generated total interest revenue of Sh7.6 billion, a 2.7 percent increase from Sh7.4 billion the year before.

The bank’s loan book expanded 12.4 percent to Sh202.9 billion while its investment in government debt dropped by a marginal one percent to Sh82.2 billion.

Other income, including fees on transactions, surged 15.7 percent to Sh2.9 billion.

The bank’s stock of non-performing loans jumped 12.4 percent to Sh17.3 billion, a move that saw it respond by lifting loan loss provisions 75.2 percent to Sh1.1 billion.

Following the quarter under review, Absa disclosed that it had restructured loans worth Sh54 billion or 26.7 percent of its loan book due to the economic fallout brought by the Covid-19 pandemic.

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