NAIROBI: Banks in Kenya have increased their hold on domestic debt as interest rates on government securities surge to a new high. Yields on the securities have been on the rise in the past months after the Central Bank of Kenya (CBK) increased its benchmark lending rate in bid to save a weakening shilling.
The regulator has in the past two meetings raised the rate by 3 per cent, 1.5 per cent in each sitting, to stand at 11.5 percent as it sought to mop up excess cash in the market to stem the free fall of the local currency against the major world currencies.
The rise in the benchmark rate, thus, pushed up the yields on the Treasury bills and bonds to a high of between 11 and 13 per cent from 8 to 11 per cent.
In last week’s auction, interest rate on the 91-day Treasury bill stood at 11.6 per cent, up from 8 per cent over a month ago. Similarly, the yields on the 182-day and 364-day bills rose to 11.8 per cent and 13.1 per cent respectively. Yields on Treasury bonds, on the other hand, have gone as high as 14 per cent, making them more lucrative than the bills.
Banks, which are the biggest buyers of the government securities, are, therefore, seeking to cash in on the high yields. According to new data from CBK, the financial institutions hold 57.1 per cent of the domestic data.
This translates to 7.2 billion dollars of the 14 billion dollars debt, which has been on a steady rise as Treasury sells more securities to finance government projects: 78 per cent of the domestic debt is held in Treasury bonds. In January, the banks hold on the domestic debt stood at 54 per cent.
During the period, interest rates on Treasury bills stood at between 8.4 per cent and 10.5 per cent. The domestic debt then stood at 13.2 billion dollars.
At the end of March, the financial institutions pushed their hold on Kenya’s domestic debt, which had then increased to 13.5 billion dollars, to 55.8 per cent. Interest rates during the period stood at between 8.4 per cent and 11 per cent.
The yields have been on the rise since June after the increase of the CBK benchmark rate, prompting the financial institutions to cash in on the higher yields. In the past three months, commercial banks have been the biggest beneficiaries of over 198 million dollars paid to government securities investors.
Following the banks closely in investing in government securities are the pension funds, whose hold on the domestic debt currently stands at 25.3 per cent, up from 23.2 per cent at the end of March.
Insurance companies come third at 9.2 per cent, having raised their stake in the debt from 8.9 per cent in June. Analysts note that banks will continue to increase stake in the domestic debt as long as rates continue to go up because they have excess liquidity.
