KCB Bank Becomes Kenya’s Largest Backer in Sh829.04 Billion G-to-G Fuel Import Deal
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KCB Bank has disbursed $6.405 billion (Sh829.04 billion) in letters of credit (LCs) under Kenya’s government-to-government (G-to-G) oil import arrangement, making it the largest backer in the two-year deal to supply fuel to the country on credit.
Background of the Kenya G-to-G Fuel Import Deal
In March 2023, Kenya signed a G-to-G agreement with Saudi Arabia and the United Arab Emirates to import diesel, petrol, and jet fuel on a 180-day deferred payment basis.
The deal, struck with Saudi Aramco, Abu Dhabi National Oil Company (Adnoc), and Emirates National Oil Company (ENOC), was designed to ease pressure on Kenya’s foreign exchange reserves by reducing the need for immediate dollar payments.
The G-to-G arrangement replaced the Open Tender System (OTS), where oil marketers previously bid monthly to import fuel. Under the new structure, Kenya could defer fuel payments for six months, reducing immediate demand for US dollars and helping to manage volatility in the exchange rate.
Initially scheduled to end in December 2023, the KCB Bank G-to-G Fuel Import Deal was extended by one year and later received further extensions beyond December 2024, with the aim of stabilizing fuel supply and cushioning the shilling.
The targeted imports included up to 4.23 million metric tonnes of diesel, 3.42 million metric tonnes of petrol, and 900,000 metric tonnes of jet fuel.
KCB Bank’s Role in the G-to-G Deal
As the primary financier of the arrangement, KCB Bank has dominated the issuance of letters of credit, guarantees issued by banks to pay suppliers on behalf of importers. By November 2023, KCB had guaranteed $3.37 billion (Sh514.96 billion) in LCs, accounting for 85% of all credit issued under the deal at that time.
This made KCB Bank the largest backer in the oil import deal, with other banks such as NCBA, Absa Bank Kenya, Stanbic Bank, Co-operative Bank, and Afreximbank handling the remaining share.
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By March 2025, KCB adjusted its role, ceding 30% of the LC issuance to other banks, including Equity Group, United Bank of Africa, Diamond Trust Bank, I&M Bank, and Pakistan’s MCB, as part of a risk-sharing strategy.
This followed earlier concerns by smaller lenders over exposure to dollar shortages and LC settlement risks.
How the G-to-G Deal Works
Under the G-to-G Fuel Import Deal, oil marketing companies (OMCs) deposit the equivalent of the fuel’s value in Kenyan shillings with KCB. After a grace period, the bank sources dollars and initiates payment to international suppliers once the 180-day term lapses.
The payment cycle begins 90 days after the bill of lading date, during which KCB and participating banks accumulate foreign currency to meet their obligations. Once due, a confirming international bank pays the supplier and is then reimbursed by the Kenyan bank that issued the LC.
This structure has increased foreign exchange activity within Kenya’s financial system while also exposing banks to exchange rate risks due to the time lag between LC issuance and maturity.
Financial Implications and Revenue Impact
The National Treasury reported that by October 2023, Kenya had paid Sh127.26 billion ($848.38 million) to Gulf oil suppliers, with another Sh247.43 billion ($1.649 billion) pending in maturing LCs.
Through this arrangement, KCB Bank earns fees for issuing LCs and may also require collateral to reduce exposure. The bank’s involvement has not only generated revenue but also ensured fuel supply continuity during periods of forex instability.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.
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