Co-Op Bank, EBRD: $50M KESONIA Cross-Currency Swap First in Kenya

• Co-op Bank and EBRD have launched a Sh13 billion ($100 million) financing program to boost foreign currency access for Kenyan businesses.
• The first Sh6.5 billion ($50 million) tranche was executed via a cross-currency swap, marking the first use of KESONIA as a benchmark rate in such a transaction.
• This initiative provides Kenyan businesses with dollar-denominated loans at competitive rates and longer repayment periods, along with enhanced trade finance and working capital facilities.
• The program targets businesses in manufacturing, agriculture, and agro-processing, especially those involved in international trade and global value chains.
• The pioneering use of KESONIA sets a new precedent for financial instrument structuring in Kenya, supporting local capital market development and strengthening business competitiveness.

This cross-currency swap is the first of its kind to utilize the Kenya Shilling Overnight Interbank Average (KESONIA) as its benchmark reference rate.

Co-operative Bank of Kenya (Co-op Bank) and the European Bank for Reconstruction and Development (EBRD) have recently formalized a substantial Sh13 billion ($100 million) financing program. This strategic partnership is designed to significantly enhance access to foreign currency funding for businesses operating within Kenya, particularly those with international market linkages.

The initial phase of this extensive facility has already seen the execution of a Sh6.5 billion ($50 million) tranche. This first allocation was structured as a cross-currency swap, a financial instrument that facilitates the exchange of principal and/or interest payments in different currencies. Notably, this specific transaction marks a significant milestone in Kenya's financial landscape.

According to Co-op Bank, this cross-currency swap is the first of its kind to utilize the Kenya Shilling Overnight Interbank Average (KESONIA) as its benchmark reference rate. The broader US$100 million facility, of which this is the first part, is specifically tailored to support businesses engaged in international trade and those with foreign currency requirements, including key sectors such as manufacturing, agriculture, and agro-processing.

The innovative application of KESONIA as a benchmark in this cross-currency swap represents a significant development for the Kenyan financial market. KESONIA, as the Kenya Shilling Overnight Interbank Average, provides a robust and transparent reference rate for short-term shilling liquidity. Its integration into a complex financial instrument like a cross-currency swap sets a new precedent for how such transactions can be structured domestically.

Legal professionals advising Kenyan businesses engaged in international trade or requiring foreign currency funding should take note of this pioneering use. The adoption of KESONIA in this context underscores a move towards greater sophistication and localization in financial product development. This development could influence future structuring of financial instruments, requiring careful consideration of contractual terms and risk management frameworks by legal and financial advisors.

Abdessamad Abouti, the EBRD's Regional Head of Local-Currency Portfolio Management, highlighted that this collaboration aligns with the EBRD's broader strategic objective of fostering the development of local capital markets. The successful implementation of such a transaction, benchmarked against a local rate, contributes to strengthening the depth and resilience of Kenya's financial infrastructure.

This new financing option from Co-op Bank and EBRD is poised to deliver substantial benefits to Kenyan businesses, particularly those involved in global commerce. The program is designed to increase Co-op Bank's capacity to provide long-term foreign currency financing, enabling its customers to access dollar-denominated loans at competitive rates and with extended repayment periods. This is crucial for businesses seeking stability in their international operations and capital expenditure.

Beyond direct loans, the initiative will also expand access to essential trade finance and working capital facilities. This is especially beneficial for exporters and businesses deeply integrated into regional and global value chains, who often face significant foreign exchange requirements. The program will also support companies in effectively managing their foreign exchange exposures arising from imports, exports, and various international contracts.

Co-op Bank Group Managing Director and CEO Gideon Muriuki emphasized that the initial $50 million tranche will enhance the bank's capability to offer competitively priced, long-term foreign currency financing. He further stated that this support is intended to bolster businesses' competitiveness, thereby contributing directly to Kenya's economic development and the creation of new employment opportunities across various sectors.

Lawyers advising Kenyan businesses engaged in international trade or requiring foreign currency funding should be aware of this new financing option from Co-Op Bank and EBRD, which offers competitive rates and longer repayment periods. Additionally, the pioneering use of KESONIA as a benchmark in a cross-currency swap sets a precedent for financial instrument structuring in the Kenyan market, requiring attention from legal professionals in banking and finance.

Source: Original reporting via Capital FM