Co-operative Bank is set to take a $150 million (Sh15.2 billion) seven-year loan from the International Finance Corporation (IFC) for onward lending to small firms.
The global lender, part of the World Bank Group, disclosed the proposed loan to the Nairobi Securities Exchange-listed firm on Monday.
“The project comprises of a senior loan… to help strengthen the bank’s long-term funding position and enable it to expand its lending operations to the under-served micro small and medium enterprises (MSMEs) segment in Kenya,” IFC says in the disclosure statement.
Kenyan banks have in recent years taken substantial loans from global funds such as the IFC, European Investment Bank (EIB) and Agence Française de Développement (AFD), attracted by relatively more favourable terms of debts including lower interest rates and longer maturity.
KCB #ticker:KCB and Equity #ticker:EQTY are among banks that have borrowed from international financiers to fund their long-term lending business.
The lenders have complained of a mismatch between long-term loans and deposits that are mostly short term in nature, exposing a gap that they have chosen to fill by credit from the institutions which charge single-digit interest rates.
International borrowing has also gained ground after the local corporate bond market was shaken by the collapse of Chase Bank and Imperial Bank which owe bondholders nearly Sh10 billion excluding interest.
IFC did not say what interest rate it will charge on the Co-op Bank loan but it has priced previous similar facilities to the lender at the London Inter-bank Offered Rate (Libor), a global benchmark, plus an unspecified premium. The 12-month Libor rate, for instance, stood at 2.4 per cent on Tuesday.
A weaker shilling is one of the major risks facing banks borrowing from international markets where the loans are denominated in hard currencies such as the dollar and euro.
The IFC says the new loan to Co-op Bank will help it meet its social investment goals of expanding credit to SMEs in the agricultural, manufacturing and trade sectors.
The financier says Co-op Bank has the scale and distribution network to disburse loans to SMEs across the country.
The bank has 149 branches and serves some 6.5 million customers.