Commercial banks are set for huge gains both as investors, lenders and lead arranges for Kenya Mortgage Refinance Corporation (KMRC) bond amidst concerns over the final cost of the mortgages.

Banks are still holding huge deposits thanks to Covid-19 and have the capital to buy up the 12.5 per cent interest KMRC bond while at the same time acting as primary lenders for the proceeds while making a five per cent margin.

The bond issue has been fixed at 12.5 per cent interest and the lead arrangers include KCB and NCBA. Others are Lions Head, Mazaars and Mboya Wangondu & Waiyaki Advocates.

Analysts have questioned the volume of concessionary funding that will be needed to bridge the cost of loans if the bond issue attracts 12.5 per cent returns.

Borrowing profile

“I have to admit I am confused by the KMRC model unless the 12.5% bond will be a minuscule percentage of the overall borrowing profile. At face value this does not look sustainable,” said Aly Khan Satchu, an independent analyst.

KCB stands to benefit the most from the KMRC funding due to the fact it’s a lead arranger and controls the country’s mortgage market.

“The largest mortgage lender in Kenya was Kenya Commercial Bank Kenya Limited (KCB), which has a market share of 29.7 per cent, followed by Stanbic Bank Kenya Limited with a market share of 13.1 per cent and HFC Ltd with a market share of 11.2 per cent,” said KMRC in a statement. Data from KMRC shows that KCB continues to control the mortgage market with 29 per cent of the market share with competitors following at a distance.

“Overall, the three largest lenders control 54 per cent of the market and only 19 banks (eight large, six medium and five small banks) have a mortgage portfolio exceeding Sh1 billion,” said KMRC.

Stanbic Bank follows with 13 percent while HFC has 11 per cent. Stanchart and Corp have 9 per cent and 6 per cent respectively. KMRC is looking for Sh10.5 billion in a series of bond issues together with cheaper funding from IMF, AfDB and other lenders to help boost housing supply.

KMRC’s Sh10.5 billion bond is to be floated in three tranches. The current Sh1.4 billion, a second Sh2.6 billion tranche in 2023 and a final Sh6.5 billion tranche in 2024.

Profit margin

The funds will be disbursed to banks which shall be allowed to lend to borrowers at a profit margin of five per cent, according to KMRC chief executive Johnstone Oltetia. KCB has Sh69 billion worth of issued mortgages while Stanbic has Sh30 billion and HFC has Sh26 billion issued mortgages.

KCB has been issuing its mortgages through their housing subsidiary S&L Mortgages. Kenya is estimated to have just over 20,000 mortgages out of a population of 47 million people.