Lenders up inter-bank borrowing

Bids on government short-term paper have received under-subscription for the sixth consecutive week.

This is in the wake of heightened political uncertainty and tight liquidity in the market.

Treasury bills (T-bills) received bids worth Sh11.2 billion or 46.7 per cent of the Sh24 billion on offer last week as activity on the banks’ overnight lending window was seen increasing.

On Tuesday, Britam Asset Managers said as liquidity conditions continued to tighten, commercial banks with excess money were choosing inter-bank lending ahead of government paper.

“Commercial banks have been channelling surplus liquidity to the inter-bank market, where rates have risen to as high as 7.5 per cent from 4.8 per cent levels before the annulment of the presidential election,” said the managers in a note to investors.

During the period under review, volumes traded in the overnight market have risen to an average of Sh20.8 billion daily against the Sh13.5 billion bids recorded in T-bills every week.

While inter-bank lending rates have been improving to become attractive for banks with excess liquidity, yields for T-bills have remained relatively stable.

According to data compiled by Britam Asset Managers, the yields on the three-month T-bill fell to 8.08 per cent in the last week as most investors kept away from the auction. This is the lowest level since January.

Above average

On the other hand, yields on the six-month and one-year papers stabilised further during the week, at 10.31 per cent and 10.99 per cent respectively, making up 85 per cent of total subscriptions. In the inter-bank markets, liquidity conditions tightened further supported by government spending and rollover of reverse repo maturities. This pushed the inter-bank rate to7.45 per cent from 6.25 per cent.

According to the Central Bank of Kenya, the cash reserve ratio cycle, which started mid-October, commercial banks’ excess reserves above average requirement of 5.25 per cent had a shortfall of Sh1.5 billion.