Kenya’s Equity Bank is set to receive a $50 million (Sh5.3 billion) loan from the private section of World-Bank for onward lending to small businesses that have been affected by the global Covid-19 pandemic.
The International Finance Corporation (IFC) made the announcement of the the multi- billion shilling support to Equity Bank, which is keen on cash preservation including recalling Sh9 billion in dividends and dropping the intention to buy four banks outside Kenya.
The loan will allow Equity Bank to maintain lending to small traders and firms that have been hard hit by the economic effects of the Covid-19 pandemic — lowering their ability to save and tap loans.
“The proposed IFC investment is a senior loan of up to $50 million (Sh5.3 billion) with a tenor of one-year renewable,” reads the disclosure of IFC investment disclosures.
This loan now seals IFC’s position as the biggest lender to the country’s second-largest bank by assets.
Equity had borrowed up to Sh17.4 billion from the global financier as of December 2019 and the upcoming credit line will push the figure to Sh22.7 billion.
Firms that heavily rely on bank loans for growth and working capital have also been affected by the measures put in place to stem the spread of the coronavirus.
Measures as national night curfew, ban of international travel, closure of bars, schools and cessation of movement into and out of counties hit hard by covid-19.
Banks, which have so far restructured loans worth Sh679 billion or 23.4 %t of their loan book in Kenya due to the pandemic are now very cautious about extending new credit lines.
The Central Bank of Kenya (CBK) has urged banks to support small and medium businesses to survive the economic slowdown caused by the novel coronavirus as many stare at possible shut down.
IFC says the new credit will help Equity, which channels about 65% of its loan book to SMEs, to make new loans to customers.
“By sustaining the bank’s ability to provide working capital and trade finance, IFC’s facility is intended to promote the resilience of trade finance markets, as well as broader stability that comes about by providing for the going concern of market participants in Kenya,” IFC said.
The financier did not disclose the cost of the loan but noted that it will rank above other loans with regard to claims on the bank’s assets.
Firms that will benefit from Equity’s onward lending of the IFC loan must have between 10 and 300 employees or annual sales of Sh10 million to Sh1.5 billion.
The loan size to each borrower will range from Sh1 million to Sh200 million as Equity becomes the first Kenyan bank to get a loan from IFC under its specific programme to support lenders during this covid-19 crisis.