Capital Markets

Twist in Kenya debt freeze bid as lender faces rating review

TRADE

Trade Development Bank CEO Admassu Tadesse during a past meeting in Nairobi. FILE PHOTO | NMG

Regional lender Trade Development Bank (TDB) has been placed on a review for a downgrade by ratings agency Moody's after coronavirus raised risk of default by African countries.

TDB, previously called PTA Bank, has issued Kenya Sh160 billion in syndicated loans over the last four years and is a leading lender to the National Treasury.

The bank gave Kenya a two-year $250 million loan in 2016, a five-year $300 million loan and a 10-year $200 million in 2017. It also helped refinance a two-year $750 million loan with a 10-year equivalent in October 2017 when Kenya was reeling from post-election disruptions.

Moody's now says the bank faces deterioration of asset quality since Africa is facing challenges with debt repayment as coronavirus ravages economies.

The agency notes Zambia, which holds nine percent of TDB loans as at March 2020, is likely to go for debt restructuring, raising the risk of losses for TDB.

"The coronavirus outbreak adds to the challenging economic conditions in Sub-Saharan Africa and raises the risk of losses and/or delayed loan repayments which could further pressure TDB's asset quality and liquidity position," Moody's points out.

Credit ratings agencies have been slashing assessments and downgrading on effect of the coronavirus pandemic amid criticism they will fuel further deterioration.

Pressure for the downward review is likely to make lenders reluctant to restructure developing countries’ debt, which need the money to combat the pandemic.

Kenya has been at the forefront campaigning for a debt freeze that could free up to Sh245.4 billion if all its lenders agree with the International Monetary Fund and the World Bank to freeze African debt repayments for a year.

President Uhuru Kenyatta said a resolution was reached during a virtual meeting of the bureau of African Union heads of state and government to ask for a debt waiver.

"As part of efforts to mitigate against the adverse effects of the global coronavirus pandemic, African governments will unite in pushing for debt waivers," President Kenyatta said on the official State House twitter handle.

Only Paris club of lenders have agreed to offer a debt moratorium saving up to Sh72 billion of local bilateral debt.