Eight local banks shared Sh19.7 billion withdrawn from the government’s emergency fund to pay a Kenya Airways loan in January, according to new parliamentary documents.

The money was released following a settlement agreement reached in September 2024 after the national carrier defaulted on its debt, triggering pressure from lenders on the Treasury, which had guaranteed the airline.

I&M Bank was the largest beneficiary, receiving Sh5.45 billion, followed by KCB Bank with Sh4.8 billion, Diamond Trust Bank with Sh2.9 billion, and Ecobank with Sh2.2 billion.

The remaining lenders were National Bank of Kenya (Sh1.5 billion), Cooperative Bank (Sh1.03 billion), NCBA (Sh871.9 million), and Equity Bank (Sh838.8 million).

Treasury withdrew the Sh19.69 billion under Article 223 of the Constitution from the government’s emergency kitty, recording the transaction under the Consolidated Fund Services budget line.

The move has drawn criticism in Parliament, with Busia Senator Okiya Omtatah alleging possible misappropriation of funds.

Responding to Senator Omtatah, Treasury Cabinet Secretary John Mbadi said the government had not budgeted for KQ’s loan settlement and only became aware of the default in September 2024.

“KQ defaulted on its repayment obligations amounting to $149,989,169 (Sh19.69 billion). The default necessitated the Government of Kenya to enter into a settlement agreement with consenting creditors on 25th September 2024 as a guarantor,” Mbadi said in a statement dated June 10, 2025.

The Treasury notes that the government guaranteed a private firm, MTC & Corporate Services Limited, and a group of creditors $225 million (Sh29 billion) in November 2017. By the time KQ defaulted, it had repaid a third of the loan ($75 million). The borrowed funds were meant for working capital, at a time when the airline had been operating at a loss for several years.

“The total expenditure was Sh19,685,136,689 against the Exchequer request of Sh19,698,584,739. The balance of Sh13,448,049 was refunded to the exchequer account on 14th January, 2025,” the Treasury added.

Senator Omtatah criticized the decision to guarantee KQ a working capital loan, pointing out that Section 58 of the Public Finance Management Act, 2012, restricts guarantees to capital projects with borrowers capable of repayment. He argued that the airline, being loss-making in 2017, did not meet the legal threshold to receive a government guarantee.