State firms tap Sh14.7bn bank loans during July


Loans into pension at old age. 

Photo credit: Shutterstock

Commercial banks advanced a record Sh14.7 billion to State corporations in July as lending to State firms returned to levels last seen three years ago.

Most parastatals are choking in debt with only a few being financially viable, which forced banks to gradually reduce their lending to State corporations by nearly a third in recent years from a high of Sh110.8 billion in January 2018 over default jitters.

Data from the Central Bank of Kenya (CBK) says lending to parastatals could be on the rise again, with net advances to this group of borrowers hitting Sh91.7 billion in July, a growth of 19 per cent from Sh77 billion a month earlier. The Kenya Bankers Association (KBA) Chief Executive Habil Olaka could not be reached for comment on the causes for the drastic jump in July, which marked the first month of the financial year 2023/24.

This is the highest value of bank loans held by parastatals in nearly three years since November 2019 when net banking system credit to State-owned entities stood at Sh96.4 billion.

Parastatals have emerged as risky customers for banks considering the myriad of financial challenges that many of them are grappling with. A number are on frequent bailouts from the government to stay afloat.

The CBK last year warned of lending to State corporations, revealing that they use much of their loans on recurrent expenditures such as paying salaries. “The SOEs used long-term debt to finance operations expenses rather than investments to generate revenues to service future debt. This limits productivity, capacity, and profitability of SOEs and in turn their viability,” said CBK.

Commercial debt, which is often more expensive, is beside the trillions of shillings that parastatals have borrowed from development financiers and the State to develop new projects and finance their operations.

Data from the National Treasury shows the amounts lent out to firms such as Kenya Railways Corporation and KenGen by the government hit Sh1.089 trillion at the end of June 2022, up by Sh121.7 billion from Sh967.3 billion a year earlier.

Of the Sh1.089 trillion, Sh52.6 billion was marked as either having been written off or repaid, leaving the outstanding amount at Sh920.69 billion.

It is unlikely, however, that lending to parastatals by banks will be sustained in the coming months, especially at a time interest on government papers has crossed the 15 per cent mark.