CBK has said that Consolidated Bank borrowed Sh1.12 billion to address liquidity shortage by the close of last year, showing the extent of cash crunch in the State-owned lender that is now seeking a bailout to pay its bond creditors.
According to CBK, The money was borrowed in three tranches in form of repurchase agreements, commonly called repos. This was borrowed at nine percent, with the bank paying interest of Sh105.86 million to the CBK for the repos during the 2018 financial year.
Between December 13, last year and January 10, 2019, the bank borrowed Sh560 million. Another repo of Sh320 million was taken between December 14 last year and January 11 this year. Another one of Sh240 million had been taken earlier.
Commercial banks have the option of getting repos from the CBK as a short-term financing solution, usually after failing to borrow from other financial institutions often at a lower rate compared to the repo charges.
“Whenever the banks have any shortage of funds they can borrow it from the Central Bank — it is more applicable when there is a liquidity crunch in the market,” CBK states in information on its website.
The repos were secured against Consolidated Bank’s Treasury bonds worth Sh1.4 billion, which represented 64 percent of the lender’s total stock of Treasury bonds and bills worth Sh2.19 billion.
Consolidated Bank has had capital challenges, making it hard to comply with regulatory requirements and support balance sheet and revenue growth.
The lender recently failed to pay the medium-term note of Sh1.6 billion that matured on July 22, instead of negotiating for a three-month extension to pay up. This is hinged on expectation that principal shareholder National Treasury will come to their rescue.