NAIROBI — In a significant shakeup to Kenya’s oil import arrangement, three major banks have exited the government’s $500 million monthly oil import deal with two Gulf states.
The move comes amid rising competition for the issuance of letters of credit (LCs) to selected local importers.
The agreement, established in March 2023, extends the credit period for petroleum product importation from 30 days to 180 days.
This initiative was midwifed by the Kenyan government in partnership with the United Arab Emirates (UAE) and Saudi Arabia, aimed at easing the dollar shortage and stabilizing the foreign exchange market.
According to the latest disclosures from the Energy and Petroleum Regulatory Authority (EPRA), NCBA Group Plc, Absa Bank Kenya Plc, and Co-operative Bank have exited the deal.
Their departure paves the way for new entrants, including Equity Group, United Bank of Africa, Diamond Trust Bank, I&M Bank, and Pakistan’s MCB.
Industry sources indicate that the selection of lenders for the oil deal was not an automatic guarantee of business.
Consequently, some banks struggled with intense competition from the four local oil importers: Gulf Energy, Galana Energies Ltd, Asharami Energy, and One Petroleum Ltd.
“To the best of my knowledge… they [banks] just didn’t get any letters of credit from importers. To clarify, just like the Open Tender System (OTS), a bank has a better chance if their client is an importer,” said a source familiar with the matter.
“There is no guarantee of business if you participate… you still have to win business from importers.”
An LC serves as proof of commitment that a bank issues on behalf of an importer, offering comfort to the supplier of goods.
KCB Bank disclosed in November 2023 that it had cumulatively guaranteed fuel import purchases worth $3.37 billion since the start of the government-to-government deal.
This reveals KCB’s significant role in supporting the government-backed deal with Saudi Aramco, Abu Dhabi National Oil Corporation, and Emirates National Oil Company, which began in April 2023.
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