Central Bank of Kenya Governor Patrick Njoroge has asked lenders to shore up their core capital to enable them grab a share of the lucrative infrastructure financing business.
Boosting the respective capital bases would increase the lenders’ ability to stave off competition from foreign finance providers. “Given the considerable financial outlays involved in infrastructure projects, commercial banks would need to enhance their capital base to participate in Public Private Partnerships while remaining compliant with regulatory requirements,” Dr Njoroge said.
He was speaking early yesterday during the launch of the fourth Kenya Bankers’ Association Annual Banking Research Conference in Nairobi. The governor was addressing the first public forum since his appointment at the end of June, in a period that the Kenyan Shilling has witnessed sharp dip against the US dollar, touching near historic lows of Sh106.80 earlier this month.
Banks are allowed to lend a maximum of 25 per cent of their core capital to a single borrower, cutting them out from financing huge infrastructure projects whose budgets are often in the hundreds of billions.
Njoroge said the nature of many infrastructure projects were long-term with current investments generating cash-flows several years after project inception. However, the maturity of most bank deposits is short-term which required the need for banks to manage this intermediation.
Banks could consider alternate sources of longer-term funding from development finance institutions such as the Africa Development Bank which provide funds for onward lending to such projects. Already, local commercial banks were exploring alternative avenues like syndicating credit facilities, as was the case with the Sh50 billion-worth project to develop the Nairobi-Mombasa pipeline commissioned by the Kenya Pipeline Corporation.
Capacity to loan
Six commercial banks, including CFC Stanbic, Commercial Bank of Africa, Citi Bank, Co-operative Bank of Kenya, Standard Chartered and South Africa’s RMB Bank are jointly funding the pipeline project, but none of them had the capacity to loan to the project singly, partly due to prudential guidelines requirements.
KBA Chief Executive Officer Habil Olaka said most banks had the capacity to be engaged in syndicated lending, effectively enabling them to take part in much bigger projects. He added that the banks were keen on funding projects that would be the link between agricultural productivity and infrastructure.
