Muna Wahome
15 June 2006
Nairobi — The Government will issue a Sh22 billion bond to recapitalise the National Bank of Kenya and Consolidated Bank, it says in a strategy paper.
The Medium Term Budget Strategy covering 2006-2009 suggests the bonds would be issued in the financial year starting July.
National Bank is owed Sh16.5 billion by the parastatals whose borrowing was guaranteed by Treasury.
Consolidated Bank on the other hand was crafted from institutions that collapsed in the mid 1980s and its health has been in the red. It is, however, unlikely that it is owed any money by the Government.
"Domestic interest payments are expected to rise from 1.7 per cent of GDP in 2004/5 to 1.9 per cent in 2006/7 and thereafter decline to 1.6 per cent 2008/9," says the paper. "The rise in domestic interest rate is due to issuance of recapitalisation bonds amounting to Sh22 billion for the restructuring of the NBK and Consolidated Bank."
The two state-owned banks are earmarked for privatisation, with the World Bank blaming them for most of the bad loans in the industry. Any such measure has to be approved by Parliament.
The Treasury owns 22 per cent of NBK, with the National Social Security Fund (NSSF) holding 48 per cent equity. The Government fully owns Consolidated Bank.
While welcoming the news, NBK managing director, Reuben Marambii, yesterday said he was yet to be fully briefed on the development. He said it represented a major debtor honouring its obligation.
"As far as I am concerned it's not a bailout, no. But if anyone wants to pay their debt I will jump at them," he said on telephone yesterday.
Money market sources explained that the bond was mainly meant to preclude the possibility of increasing money supply by injecting liquidity at once. It is expected that NBK and Consolidated Bank will hold the bond and cash the interest according to their capital requirements.
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