Co-op Bank executes Kenya’s first KESONIA cross-currency swap with EBRD
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Co-operative Bank of Kenya executed the first $50 million tranche of a $100 million currency-swap programme with the European Bank for Reconstruction and Development. The cross-currency transaction used the Kenya Shilling Overnight Interbank Average, or KESONIA, as its reference rate. The EBRD and Co-op Bank said it was the first cross-currency swap to use the new benchmark.

The programme is designed to increase Co-op Bank’s capacity to provide longer-term dollar financing at competitive prices. It is aimed at businesses with foreign-currency revenues, costs or contractual obligations, including exporters and importers. Co-op Bank identified manufacturing, agriculture and agro-processing among the intended sectors.

SWAP MANAGES FUNDING RISKS

A cross-currency swap exchanges funding obligations in different currencies under pre-agreed terms. Under the arrangement, the EBRD provides dollars and receives shillings, so Co-op Bank can lend dollars without buying them in the open market and the EBRD can raise and manage shilling funding for local-currency lending. The executed tranche represents half of the programme’s announced total size.

Businesses may use the resulting financing for working capital, machinery, equipment, technology and other investments linked to international markets. Co-op Bank chief executive Gideon Muriuki said the first tranche would support long-term, competitively priced foreign-currency lending. Neither institution has disclosed the swap’s pricing or when the remaining $50 million will be executed.

KESONIA GAINS MARKET USE

KESONIA is Kenya’s new overnight interbank benchmark reference rate. EBRD official Abdessamad Abouti said use of the benchmark in the swap showed local financial-market reforms moving into implementation. The EBRD said using KESONIA in a live transaction would help build confidence in the benchmark and encourage its use.

Co-op Bank said customers, particularly exporters and businesses in regional and global value chains, would gain increased access to trade finance and working-capital facilities.