KCB bank has said that the Sh24 billion loan being sought by the government on behalf of the Kenya National Trading Corporation (KNTC) will not destabilise the market.
On Monday KNTC revealed that it had entered into a deal with the lender for the provision of the funds for the importation of fertiliser and foodstuff.
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The State owned corporation secured a letter of credit—a guarantee that a seller will receive a buyer’s payment on time — from the bank to support the importation of 100,000 tons of household goods on a duty-free basis.
Formed just after independence, KNTC was vibrant until the early 1980s when mismanagement coupled with market liberalisation brought it down to its knees.
The Ruto administration has revived it and wants to use it to stabilise market prices of key commodities.
The state borrowing on its behalf has sparked concern from financial experts and shareholders that this was likely to crowd out individual borrowers who might be deemed risky.
This emerged during the release of the bank's financials where questions were raised on what loaning the government Sh24billion would portend to individual borrowers.
However, KCB Bank Group Chief Executive Officer Paul Russo downplayed this saying the funding will be managed on a collateral management basis, as is the case with fuel firms.
“The money will not be issued to KNTC directly. We have governance structures, we have a credit committee, there are conditions for fulfilment just as there is for any KCB customer," said Russo.
Through the risk management in collateral basis the money will only be paid upon delivery of goods.
He pointed out that through this model the loan is securitised, and only directed to the specific entities that are supposed to receive it.
The corporation will set the retail prices of goods including cooking oil, sugar, rice and beans as part of the government's plan to lower the cost of basic commodities.
This is aimed at stabilising the runaway price of basic goods, which has seen a two-kilo packet of sugar retail at Sh312 with maize flour of similar quantity selling at between Sh180 and Sh200.
The Kenya Revenue Authority issued an exemption on duty to KNTC for the importation of 125,000 tons of cooking oil, 25,000 tons of rice, 80,000 tons of beans, 200,000 tons of sugar and 150,000 tons of rice.
Kenya National Trading Corporation chief executive Pamela Mutua said that the loan has been negotiated over a longer credit, as payback will be made in dollars
“We are not paying after one month from six months it’s enough to plan and buy dollars for the repayment,” said Mutua.
The government has allocated Sh6-9 billion for fertiliser and Sh15 billion for foodstuff.
