City Hall seeking new bank to buy out its Sh4.2 billion KCB loan

City Hall is sourcing for a bank to buy out its Sh4.2 billion loan owed to Kenya Commercial Bank.

The county government is also grappling with a Sh57 billion debt owed to suppliers.

Documents tabled before the county assembly indicate that the Sh2.4 billion loan was initially borrowed from Equity Bank in 2011 by the defunct Nairobi City Council in order to pay staff pensions and income tax.

The county assembly majority leader, Abdi Guyo, yesterday told The Standard that the defunct local government had refinanced the loan with KCB due to high lending rates by Equity Bank.

“The lending rate was 20 per cent and the defunct council was required to pay back the money in 60 months. This prompted the county to look for another bank with better lending terms and that is when KCB took over the loan,” he said.

In April 2014, KCB bought out the loan, giving the county more time to repay the debt by increasing the maturity period to eight years at a lending rate of 13 per cent. It also extended a six-month grace period to the county before it could start paying the debt.

Through a motion tabled last week, Mr Guyo urged the assembly to approve the refinancing of the debt by another bank to ensure that the county was able to repay its debts.

Guyo was concerned that the county’s debt was piling up and would soon hinder service delivery unless it was immediately addressed.

Currently the debt stands at Sh57 billion.

“It is important for the motion to be passed because the debt is just too big. With such debt levels, the county cannot engage in any meaningful projects,” said Guyo. 

Last Tuesday, the Nairobi County Finance and Economic Planning Committee requested the Government to allow City Hall to engage other lenders.

The committee observed the debt had dragged on for years due to lack of proper financial management by former regimes, and that measures needed to be put in place to address the problem.

The chairman of the budget and appropriations committee, Robert Mbatia, supported the motion, saying it was only through debt repayment that the county could come up with and implement realistic budgets in the future.

Cash crunch

The Nairobi County government has been experiencing a cash crunch due to a drop in revenue collection since 2014. This has prompted the assembly to urge the executive to slash its budget for the 2018-19 financial year by Sh2 billion from Sh34 billion to Sh32 billion.

In January this year, Governor Mike Sonko constituted a 10-member committee to review the county’s debt, then amounting to Sh60 billion.

It was expected to scrutinise all pending payments at City Hall and make recommendations to the county treasury on how to manage them.