The agreement, which involves the extension of the credit period for the importation of petroleum products from 30 days to 180 days, was mid-wifed by the Kenyan government in partnership with the governments of the United Arab Emirates (UAE) and Saudi Arabia in March 2023 to help ease dollar shortage in the economy and stabilise the foreign exchange market.

Latest disclosures by the Energy and Petroleum Regulatory Authority (Epra) shows NCBA Group Plc, Absa Bank Kenya Plc, and Co-operative Bank have exited the deal, paving the way for new entrants Equity Group, United Bank of Africa, Diamond Trust Bank, I&M Bank and Pakistan’s MCB.

Sources from the banking industry say the selection of the lenders under the oil deal was not an automatic guarantee for business and, as a result, some of them could not cope with the intense competition for business from the four local oil importers: Gulf Energy, Galana Energies Ltd, Asharami Energy and One Petroleum Ltd.

To clarify, just like the Open Tender System (OTS), a bank has a better chance if their client is an importer,” a source said.

“There is no guarantee of business if you participate ... you still have to win business from importers.”

An LC is proof of commitment that a bank issues on behalf of an importer, which offers comfort to the supplier of goods.

KCB Bank disclosed in November 2023 that it had cumulatively guaranteed fuel import purchases worth $3.37 billion since the start of the government-to-government deal, revealing its might in supporting the government-backed deal with Saudi Aramco, Abu Dhabi National Oil Corporation and Emirates National Oil Company, which started in April 2023.

KCB Group Chief Executive Officer Paul Russo said on July 16 that the group had built expertise in oil and gas, established a strong trade finance segment and developed a strong relationship with international financial institutions to boost its international trade business in the oil sector.

Read: How KCB reclaimed position of East Africa’s most profitable bank

“Three teams are important for the success of this business: Oil and gas, trade finance and financial institutions.

“Oil and gas build relationships, trade finance structure products while financial institutions ensure you have limits with counterparties to fulfil client commitments,” Mr Russo said in an interview.

NCBA and Co-operative banks were not available for comment as their managers did not respond to our calls and text messages.

The government in March 2023 picked a consortium of five local banks to issue LCs of up to $4.8 billion for fuel to be imported on credit from the UAE over nine months by the oil marketers.

KCB, NCBA, Absa Bank Kenya, Stanbic Bank, Co-operative Bank made the list, alongside Africa Export-Import Bank (Afreximbank).
The importation of petroleum through the government-to-government arrangement is one of the key measures that Kenya implemented in early 2023 to avoid an economic meltdown due to money supply constraints that existed then, in particular, dollar liquidity constraints.

The scheme is aimed at easing forex pressures by eliminating the buying of fuel, the country’s largest import commodity, in the spot market by postponing the demand for dollars.

Prior to the oil deal, the oil marketing companies’ demand for foreign currency to meet their import bills under the OTS stood at $500 million every month.

The nine-month scheme expired in December 2023 but was extended by 12 more months to December this year. By James Anyanzwa, The East African