Stanbic Bank Kenya starts recovery of Sh1.6bn paid to settle commercial row

Stanbic Bank Kenya has started recovery of the $14.6 million (Sh1.6 billion) it paid in 2019 to settle a commercial dispute.

The money was paid to an unnamed corporate customer that had taken out a contract protecting itself against default by its partner in international trade.

Known as an advance payment guarantee, the contract triggers a claim whenever the cash recipient is unable to deliver the required goods or services to the buyer.

“We have recovered some of it from last year. We had a settlement agreement with the contractor,” Stanbic chief executive Charles Mudiwa said.

He said the recovery of the funds is ongoing, adding that the bank is not able to disclose the amounts raised so far.

Advance payment guarantees, used to facilitate international trade, are used when a supplier or contractor needs to receive some money upfront to enable it to deliver the goods or services.

Before the settlement, the bank had said it was ready to support the relevant authorities to investigate the matter.

Stanbic had issued the guarantee on behalf of a foreign bank and a claim arose in 2018 following a disagreement between the applicant (client of the foreign bank) and the beneficiary.

The specifics of the fallout were not disclosed. Such deals, however, entitle the aggrieved party to demand compensation if the contractor did not perform as stipulated in the agreement.

The Kenyan bank decided to pay the money to the client of the foreign bank the next year as it considered various options for recovering the cash.

Banks charge fees to issue such guarantees and may also take security to cut their exposure. The contracts rarely generate losses.

The payout by Stanbic raised its operating expenses significantly in the year ended December 2019.

Its other operating expenses increased by Sh1.6 billion to Sh6 billion in the review period, with the increase nearly matching the one-off payout.

The amount was nearly a quarter of Stanbic’s Sh6.3 billion net earnings reported in the period.