Co-operative Bank gets Sh10.7bn for long-term lending

What you need to know:

Co-operative Bank of Kenya has received Sh10.7 billion ($105 million) from the International Finance Corporation (IFC) to finance businesses that earn foreign exchange.
Commercial banks have been turning to international lenders for long-term funds to support lending as most of their deposits are short term.
Lack of long-term funds has been cited as one of the reasons behind low mortgage financing in the country.

Co-operative Bank of Kenya has received Sh10.7 billion ($105 million) from the International Finance Corporation (IFC) to finance businesses that earn foreign exchange.

The loan with a seven-year tenure will increase Co-op’s long-term funding to Sh26 billion.

“The long-term tenure of the facility significantly boosts the bank’s ability to offer financing solutions that are better structured and priced to fulfil the long-term financing needs of customers,” said Co-op’s chief executive Gideon Muriuki.

Co-op disclosed it will be looking to finance export-oriented businesses with the cash.

Commercial banks have been turning to international lenders for long-term funds to support lending as most of their deposits are short term.

Lack of long-term funds has been cited as one of the reasons behind low mortgage financing in the country.

The dollar-denominated loans also support lending in foreign currencies.

Other lenders that have recently received funding from international financiers include Family Bank which got Sh1 billion from Oikocredit and NIC Bank, which Sh5.6 billion from the European Investment Bank.

International funds are also priced lower than local deposits, proving attractive as depositors increasingly demand banks at least match government returns. Currently the five-year Treasury bond is offering yield of 13.9 per cent.

IFC, the investment arm of World Bank, has been a major financier for many Kenyan banks including Equity Bank, NIC, DTB and Chase Bank.

READ: IFC to inject Sh4bn into DTB, Chase banks

This is the second financing Co-op Bank is drawing from the IFC, having already received a $60 million (Sh6.1 billion) loan from the financier in December 2012 for onward lending to SMEs and agribusinesses.

The bank’s loan book stood at Sh212 billion in September, with a deposit base of Sh257 billion.

It posted a 32 per cent growth in profit-after tax in the nine months to September at Sh8.6 billion compared to Sh6.3 billion a year earlier.

While interest details of the new loan have not been made public, the 2012 loan had an element of fixed and variable rate, the latter pegged to the London Interbank Offered Rate (Libor) rate.