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Tough rule for banks to access idle cash

By Dominic Omondi | March 25th 2020

Central Bank of Kenya (CBK) issued fresh conditions for banks that wish to access the Sh35.2 billion it freed up after slashing the Cash Reserve Ratio (CRR) by one percentage point.

In a statement yesterday, the apex bank noted that only banks that show a willingness to on-lend to customers will access the pool.

“CBK will avail this liquidity to banks based on their demonstrated requirement to directly support borrowers that are distressed as a result of Covid-19,” read part of the statement from the regulator.

CRR is the fraction of cash deposits that banks maintain with the CBK daily.

In addition to slashing CRR, the Central Bank’s Monetary Policy Committee (MPC) also lowered its benchmark lending rate as it sought to leave banks with more money for onward-lending to consumers.

CBK Governor Patrick Njoroge moved to allay fears that banks would not transmit these gains to borrowers, explaining that it takes at least two months before borrowers start enjoying the benefits.

In case of repurchase agreements (Repo), where a bank sells government securities to investors and buys them back after a short period, CBK extended the tenor for paying back from 28 to 91 days.

Personal loans

Moreover, after the bank of last resort brokered for extension or restructuring of personal loans, it has relaxed the requirement on classification and provisioning for loans that were performing as of March 2, 2020. It has now said that it will allow for flexibility.

CBK observed that it would ensure the inter-bank market and liquidity management across the banking sector continues to function.

This is the rate at which banks borrow from each other and usually pay it overnight. “CBK stands ready to ensure the orderly functioning of financial markets and the stability of the banking sector.”

CBK has been burning the midnight oil to keep the wheels of the economy rolling amid the coronavirus pandemic that has gutted global supply chains.

Besides these measures, CBK has also facilitated the scrapping of fees for transactions valued at Sh1,000 and below. This is aimed at reducing the spread of the virus by touching hard currency as people go cashless.

This comes at a time when Kenya has sought outside help in the fight against the pandemic, with the World Bank and IMF pledging a total of Sh122 billion.

It will be the slowest growth since 2009 when it expanded by 2.7 per cent.

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