Amidst increasing competition for the issuance of letters of credit (LCs) to the chosen local importers, three Kenyan banks have left the government’s lucrative USD 500 million monthly oil import agreement with two Gulf states.
To alleviate the dollar shortage in the economy and stabilise the foreign exchange market, the Kenyan government, working with the governments of Saudi Arabia and the United Arab Emirates (UAE), mediated an agreement in March 2023 that extends the credit period for the importation of petroleum products from 30 days to 180 days.
Equity Group, United Bank of Africa, Diamond Trust Bank, I&M Bank, and Pakistan’s MCB are the new entrants in the deal after NCBA Group, Absa Bank Kenya, and Co-operative Bank withdrew, according to the most recent disclosures made by the Energy and Petroleum Regulatory Authority (EPRA).
The choice of lenders under the oil deal did not guarantee business, and as a result, some of them were unable to withstand the fierce competition from the four local oil importers, Gulf Energy, Galana Energies, Asharami Energy, and One Petroleum, for business.
In November 2023, KCB Bank revealed that since the beginning of the government-to-government agreement, it has guaranteed fuel import purchases totalling USD 3.37 billion. This disclosure demonstrated the bank’s strength in backing the government-backed agreement with Saudi Aramco, Abu Dhabi National Oil Corporation, and Emirates National Oil Company, which began in April 2023.
To expand its international trade business in the oil sector, KCB Group Chief Executive Officer Paul Russo stated that the company had developed a strong trade finance segment, built expertise in the oil and gas industry, and cultivated strong relationships with global financial institutions.
In March 2023, the government selected a group of five regional banks to issue Letters of Credit (LCs) worth up to USD 4.88 billion, allowing the oil marketers to import fuel from the United Arab Emirates on credit over nine months.