Commercial banks seeking to introduce financing instruments for climate-friendly projects are mulling over at least three options as Nairobi Securities Exchange (NSE) prepares for green bonds.
Top on the list, says Kenya Bankers Association (KBA) chief executive Habil Olaka, is to have a single bank issue the green bond for onward lending to specific projects.
Some banks have issued corporate bonds in the past, some of which are already listed on the NSE. Among those that have listed bonds or medium-term notes are Housing Finance, Consolidated Bank (which enjoys Treasury backing), I&M Bank, Family Bank and Stanbic Bank.
A major hindrance in such bonds could, however, be the current rate cap model that restricts the interest rate that can be paid for such lending.
“In terms of a corporate issuance, we have a number of scenarios we are looking at. There is the possibility that one of the banks will be the first to get to the market especially those that have the size to raise capital as single entity,” said Mr Olaka.
He said the other alternative is for the KBA to create a special purpose vehicle (SPV) under which a number of banks that show interest in issuance but cannot do so individually will come together. Here the SPV then becomes the issuer.
A number of medium-sized and small banks could, for example, come together to form such an SPV. Kenya has seen several banks working together for a common purpose or client as is the case where they have given syndicated loans to a single company.
“The other possibility is that we create a vehicle supported by the KBA, for example, where a number of banks that show appetite for issuance but cannot do so individually come together in this vehicle,” said Mr Olaka.
“The third scenario is that corporate clients of our member banks could issue green bonds as single entities and for this we have got good example of entities that are already playing in that area. Green energy for example, the likes of Kengen are potential issuers. Currently they could be issuing bonds towards green investment but not taking advantage the incentives that could be availed for green bond issuers,” said Mr Olaka.