Commercial Bank of Africa, the country’s largest privately-owned lender, has secured a Sh9.297 billion ($90 million) facility from the African Development Bank (AfDB) for on-lending largely to credit-starved small and medium-sized enterprises.
The two institutions will sign the deal today.
About $50 million (Sh5.17 billion) of the cash is in the form of a line of credit, while the remainder $40 million (Sh4.13 billion) has been committed under the Trade Finance Line of Credit (TFLoC).
“The funding will be geared towards helping finance small and medium enterprises (SMEs) and local corporates involved in value-addition,” AfDB said. The facility targets firms in some of the sectors which have suffered a drop in credit, according to the latest data from the Central Bank of Kenya.
CBA, associated with the wealthy Kenyatta family, will be extending the funds to firms in trade, manufacturing, agriculture, infrastructure, transport, and construction. The deal comes at a time when year-on-year growth in private sector credit has slowed to 1.6 per cent in August from 21 per cent in August 2015.
Risk-averse banks have blamed the year-old cap on loan charges and rising non-performance of loans for the sharp slowdown which has hit dominant SMEs hardest.
NPLs rose to 10.7 per cent, or more than Sh250 billion, in August of gross loans from 9.9 per cent in June largely due to layoffs in the private sector and delayed payments to suppliers by the government, latest CBK data shows.
Most banks are expected to experience a drop in their capital base when the International Financial Reporting Standards (IFRS) 9 take effect next January.
The new rules require lenders to set aside cash for expected rather than incurred (which they already do under CBK’s prudential guidelines) credit loss based on historical loan performance data.