Absa Bank Kenya #ticker:ABSA has lent East African Breweries Limited #ticker:EABL (EABL) a total of Sh18.8 billion, breaching the limits placed on lending to a single borrower.
The bank had a core capital of Sh46.3 billion as of June, meaning that it should not have lent more than Sh11.5 billion to one entity.
The brewer has disclosed the series of loans it has taken from Absa Kenya amounting to Sh18.8 billion in its latest annual report for the year ended June, equivalent to 40.6 percent of its core capital.
A bank must not lend more than 25 percent of its core capital to one borrower or related borrowers in the rule known as single obligor.
The rule is designed to reduce the risk of bank failure due to defaults on a few big loans.
In a statement to the Business Daily, Absa Kenya diverged from the disclosures by EABL and suggested that it only provided part of the loans without specifying its exposure to the brewer.
“There are no regulatory breaches associated with our transactions with any of our clients,” said James Agin, Absa Kenya’s regional director for corporate and investment banking.
“As part of one of the largest pan-African financial institutions, some of our high value transactions are executed by Absa Group, its subsidiaries and affiliates across the continent.”
Absa Group is based in South Africa and owns 68.5 percent of the Kenyan lender.
EABL disclosures say it borrowed the Sh18.8 billion from Absa Kenya and did not mention the South African bank or financiers affiliated to the local lender.
Absa Kenya declined to reveal the share of loans offered to EABL by its affiliates based on its statements.“We have a prudential responsibility to uphold the confidentiality of our customers and therefore we cannot disclose details about specific client transactions,” the bank said.Banks are regulated at country level, meaning that Absa Kenya’s capital is required to keep up with its lending activities even if some of the loans it was disbursing represented funds sourced from its affiliates in other markets.EABL’s newest loan from Absa Kenya is a Sh11 billion facility which took the lender above the regulatory limit.The brewer had earlier borrowed Sh3 billion and another Sh4.8 billion from the bank.Institutions breaching the single obligor rules, among others, risk fines from the Central Bank of Kenya (CBK).“An institution shall not in Kenya grant to any person or permit to be outstanding any advance or credit facility … at […]