Banks opt for Treasury Bills, crowding out private sector

By James Anyanzwa

Kenya: Commercial banks are awash with liquidity. The excess cash is finding its way into Treasury bills in a development that is likely to impact lending rates and crowd the private sector out of credit.

But the Central Bank of Kenya (CBK) allayed fears of the likely increase in interest rates even as the Government intensifies borrowing from the domestic money market to pay off maturing debts.

CBK Governor Njuguna Ndung’u said the State’s borrowing programme for the 2013-2014 fiscal year remains consistent with the monetary policy objectives.  He noted the domestic borrowing programme has enabled the bond market to remain vibrant while also facilitating the deepening of the capital market.

“The programmed domestic borrowing ensures that the private sector is not crowded out as that would jeopardise the expected increase in private investment,” he said.

Bloated government

The development in the money markets does, however, offer a big reprieve for a bloated Government that is in dire need of funds to finance it. 

Latest data from CBK reveals massive oversubscription in the money markets, with commercial banks offering to lend to the Government at a lower rate of return compared with previous auctions. The development has also CBK swing into action to mop up Sh29 billion of excess liquidity through repurchase agreement, securities and term auction deposits. 

During the week ending March 14, CBK offered 91-day Treasury Bills, with intentions to raise Sh3 billion from the investors. A total 177 bids amounting to Sh7.36 billion was received, representing an oversubscription of 145.56 per cent.

The total bids accepted amounted to Sh7.36 billion, with investors being offered a return of 8.94 per cent down from 9.01 per cent in the previous auction.