- The bank had a capital base of 46.3 billion shillings in June, which means that it should not have lent more than 11.5 billion shillings to an entity.
- The brewer disclosed the series of loans it has taken with Absa Kenya in the amount of 18.8 billion shillings in its latest annual report for the fiscal year ended in June, or 40.6% of its capital of based.
- A bank should not lend more than 25 percent of its capital base to a borrower or borrowers bound in the rule known as single debtor.
Absa Bank Kenya #ticker: ABSA has loaned East African Breweries Limited #ticker: EABL (EABL) a total of 18.8 billion shillings, exceeding the limits on loans to a single borrower.
The bank had a capital base of 46.3 billion shillings in June, which means that it should not have lent more than 11.5 billion shillings to an entity.
The brewer disclosed the series of loans it has taken with Absa Kenya in the amount of 18.8 billion shillings in its latest annual report for the fiscal year ended in June, or 40.6% of its capital of based.
A bank should not lend more than 25 percent of its capital base to a borrower or borrowers bound in the rule known as single debtor.
The rule is designed to reduce the risk of bank failure due to defaults on some large loans.
In a statement to the Business Daily, Absa Kenya backed away from EABL’s disclosures and suggested that she had provided only part of the loans without specifying her exposure to the brewer.
“There are no regulatory violations associated with our dealings with any of our clients,” said James Agin, Absa Kenya’s regional director for merchant and investment banking.
“As a member of one of the largest pan-African financial institutions, some of our high value transactions are executed by Absa Group, its subsidiaries and affiliates across the continent.
Absa Group is based in South Africa and owns 68.5% of the Kenyan lender.
EABL’s disclosures indicate that it borrowed 18.8 billion shillings from Absa Kenya and did not mention the South African bank or financiers affiliated with the local lender.
Absa Kenya refused to disclose the share of loans offered to EABL by its subsidiaries based on its statements.
“We have a prudential responsibility to maintain the confidentiality of our clients and therefore we cannot disclose the details of specific client transactions,” the bank said.
Banks are regulated at the country level, which means that Absa Kenya’s capital is required to monitor its lending activities even though some of the loans it disbursed represented funds from its subsidiaries in other markets.
Absa Kenya’s latest EABL loan is an 11 billion shillings facility that allowed the lender to exceed the regulatory limit.
The brewer had previously borrowed 3 billion shillings and an additional 4.8 billion shillings from the bank.
Institutions that break single debtor rules, among others, face fines from the Central Bank of Kenya (CBK).
“An institution in Kenya must not at any time grant to a person or leave in abeyance an advance or a credit facility… at any time exceed twenty-five percent of its capital base,” says the Banking Act.
The law adds that the advances, credit facilities, financial guarantees and other commitments of the borrower and his associates are aggregated for the calculation of their total value and the restriction applies with regard to this person and his associates. .
The loans that Absa Kenya has made to EABL include an 11 billion shillings unsecured facility which matures in July 2022 and bears interest at 10.3%.
The lender also gave the brewer 4.8 billion shillings unsecured at an interest rate of eight percent. The loan is repayable in 12 quarterly installments of 400 million shillings from July 2022.
Another 3 billion shillings from the bank maturing in December 2026 was taken at an effective interest rate of eight percent and is guaranteed by brewer Diageo’s parent company, which issued a comfort letter.
Absa Kenya also provided EABL with the 6 billion shillings it used to repay its corporate bond of a similar value in June – earlier than the expected due date of March 2022. It was not clear whether the 6 billion shillings loan was still outstanding.
The single-debtor rule violation is the most common breach of compliance, according to the CBK’s 2020 Banking Supervision Report.
“Most of the violations concerned failure to meet single obligor limits, mainly due to a decline in the basic capital of some banks which continued to report losses,” the regulator said in the report.
“Nine banks violated Article 10 (1) of the Banking Law by exceeding the single debtor limit of 25% of the base capital,” the CBK said without naming the institutions.
EABL may soon repay part of Absa Kenya’s loans out of the 11 billion shillings it plans to raise by issuing a new corporate bond, thereby reducing the lender’s exposure to the brewer’s business.
“The proceeds of the issue (…) will be used by EABL to repay certain loans contracted in the normal course of business, to provide working capital to the group throughout East Africa and to refinance certain loans in the short term, ”the brewer said in an advisory. yesterday.
“EABL does not anticipate any increase in debt levels as a result of the issuance.”
The brewer’s long-term bank loans amounted to 38.2 billion shillings in the year ended June, compared to 30.9 billion shillings the year before. Its short-term bank loans also increased to 6.9 billion shillings from 4.1 billion shillings.
The unsecured bond will mature in five years and bear a fixed interest rate of 12.25%.
The offer was opened yesterday and ends October 21. Bondholders will invest a minimum of 100,000 Sh and additional amounts in multiples of 10,000 Sh.
Banks and bondholders have been willing to lend to EABL due to its profitability and position as a brewer with the largest market share in the region.
“The group did not violate any financial covenants for the facilities issued by its bankers as of June 30, 2021. The group had unused facilities of 11.4 billion shillings as of June 30, 2021 (2020: 4.1 billion shillings ) ”, EABL says in the report.