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Banks warned of risks from State corporation reforms
Bowmans says guarantees, comfort letters and support agreements tied to specific statutory corporations may not automatically survive the transition, depending on their wording.
Commercial banks should reassess the billions of shillings in loans extended to State corporations, experts have said, warning that government backing of the debt may not be guaranteed under the new law which transformed many public agencies into public limited liability companies.
Analysts at law firm Bowmans said lenders should treat State-owned enterprises (SOEs) as standalone entities on the strength of their own balance sheets, rather than quasi-sovereign borrowers with government support as has been the case in the past.
The warning follows the enactment of the Government Owned Enterprises (GOE) Act, 2025, which came into force in December 2025 and overhauled the legal framework governing SOEs.
“...Lenders should not assume continued sovereign support and should reassess GOE credit risk on a standalone basis,” the analysts including Aleem Tharani, Dominic Indokhomi, Edwin Baru, Nairuko Kantai and Qabale Guyo said in a note.
“Existing guarantees that refer to a named statutory corporation may not automatically extend to the successor company, depending on the drafting”.
The law repealed many individual statutes that created State agencies and requires numerous corporations to be reconstituted as public limited liability companies as part of a broader programme to commercialise public assets and attract private investment.
“The GOE Act also does not expressly provide for the transfer of sector-specific regulatory approvals, operating licences, concessions or permits. Financial institutions should review each approval on a case-by-case basis,” the analysts said.
The concern is significant given the size of borrowing by State corporations outside Kenya’s officially guaranteed public debt.
Treasury data shows at least 14 state-owned enterprises had accumulated Sh44.87 billion in non-guaranteed debt by June 2025, much of it owed to commercial lenders. The loans are excluded from Kenya’s public debt stock because they lack government guarantees, although they still expose taxpayers to potential fiscal risks if distressed entities fail to honour their obligations.
For years, banks have viewed lending to State corporations as relatively low-risk because of their strategic importance and the belief that the government would ultimately step in if necessary. Some of the country’s largest public entities have substantial outstanding obligations to lenders.
Kenya Power carried Sh10.4 billion in non-guaranteed loans as at June 2025, including Sh7.07 billion owed to Standard Chartered Bank and Sh3.37 billion borrowed from NCBA Bank.
Its exposure was closely matched by KenGen, which held Sh10.34 billion borrowed from Absa Bank Kenya, the largest single non-guaranteed loan among state corporations.
The Kenya Airports Authority had outstanding loans of Sh8.98 billion from Agence Française de Développement and the World Bank, while the Geothermal Development Company owed NCBA Bank Sh1.36 billion.
The financially troubled National Oil Corporation of Kenya carried Sh5.98 billion in commercial debt, comprising Sh3 billion owed to KCB Bank and Sh2.98 billion to Stanbic Bank.
Although the GOE Act provides that successor companies will inherit the assets, liabilities, rights and obligations of the entities they replace, uncertainty remains over government support arrangements linked to the previous structures.
Bowmans says guarantees, comfort letters and support agreements tied to specific statutory corporations may not automatically survive the transition, depending on their wording.
The uncertainty could influence how banks price loans, assign risk weights and determine future lending to state-owned enterprises.
The law firm further warns that some existing financing agreements may contain provisions tied to the statutory status or borrowing powers of corporations established under laws that have since been repealed.
As a result, lenders may need to renegotiate facility agreements, obtain waivers or seek legal confirmations to avoid complications during the transition process.
Additional risks could emerge from audits required before assets and liabilities are transferred to successor companies.
According to the analysis, the reviews could reveal previously undisclosed debts, litigation claims or other liabilities that materially alter the financial position of affected enterprises.
The GOE Act does not prescribe a deadline for completing the conversion process, potentially prolonging uncertainty for lenders, investors and the corporations themselves.
Bowmans is advising financial institutions to review their loan books, security arrangements, guarantees and other exposures linked to state-owned enterprises.
The firm also recommends that lenders whose credit assessments rely on government support seek written confirmation from the National Treasury on whether such backing will continue after conversion.
