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Treasury to pay 6.7 billion shillings loan to KCB

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Treasury to pay 6.7 billion shillings loan to KCB


Kenya Commercial Bank branch in Gikomba market in Nairobi on Thursday, November 12, 2020. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • The state Department of Crop Development and Agricultural Research told parliament last week that interest on the loan continues to accrue at a penalty rate of 22.5%.
  • The Departmental Agriculture and Livestock Commission of the National Assembly has also been informed that no allocation has been made to settle pending fertilizer bills during the 2022/23 financial year.
  • If the default persists, the government could end up paying more interest and penalties than the amount borrowed from the country’s second-largest bank.

The Treasury has been asked to release funds to settle a 6.7 billion KCB shillings loan #ticker:KCB which was used to purchase subsidized fertilizer.

The state Department of Crop Development and Agricultural Research told parliament last week that interest on the loan continues to accrue at a penalty rate of 22.5%.

This translates into a penalty of 3 million shillings per day and 90 million shillings per month, underlining the financial burden of defaulting on the credit facility.

“Implement the Cabinet Directive…which directed the National Treasury to provide funding of 8 billion shillings to settle all outstanding debts to suppliers, service providers and the National Grains and Commodities Board,” wrote the department in its submission to Parliament last week.

The Departmental Agriculture and Livestock Commission of the National Assembly has also been informed that no allocation has been made to settle pending fertilizer bills during the 2022/23 financial year.

It is unclear why the Treasury did not act on the cabinet directive.

The NCPB borrowed 4 billion shillings from the KCB in the 2016/2017 financial year for subsidized fertilizer imports, but failed to repay as the loan increased due to unpaid interest and penalties.

If the default persists, the government could end up paying more interest and penalties than the amount borrowed from the country’s second-largest bank.

The NCPB bought a bag of fertilizer for Sh3,400 and sold the same for between Sh1,500 and 1,800, with the government supposed to cover the difference.

However, the government failed to pay the grant difference, leaving the debt to accumulate. The loan is part of several large credit facilities taken from banks by various government agencies that have remained unpaid for years.

The government, however, tends to end up paying almost all of its debt. Late payments are one of the biggest problems affecting companies that do business with the government.

Audits have shown that Crown corporations lead by default. Flag carrier Kenya Airways is among the state-owned companies that have defaulted on their creditors, including banks and suppliers.

The KCB, in which the government holds a majority stake through the National Treasury and the National Social Security Fund, has participated in many government programs.

For banks, the suspension of loan repayments means reduced profitability and potential provision of debt depending on how long it has remained unpaid and the creditworthiness of the borrowing entity.

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