CBK Raises Red Flag on Parasternal Loan Defaults

The banks are risking losing up to Sh100 billion loaned to parastatals, the Central Bank of Kenya (CBK) has warned, citing deepening cash-crunch among the State agencies due to slowdown in economic activity, competition from cheaper imports and bad governance.

35 banks have issued loans to State-owned enterprises (SOEs) in December 2019 comprising some of the largest single borrower exposures, with those in the energy sector accounting for the biggest share.

“The SOEs in the agriculture sector were able to service their loans, while SOEs in the transport, trade and manufacturing sectors have their loans mostly in watch and doubtful categories,” the CBK said in its newly published financial sector stability report.

Banks have struggled to collect their debts from failing State corporations, resorting to auctioneers and placing some of them under receivership to get their loans paid.

KCB has put Mumias Sugar in receivership and has attached a debenture to all East African Portland Cement assets in a demand for the repayment of an outstanding Sh6 billion debt.

Government firms have suffered huge losses over the years as a result of inefficiencies and poor management.