Commercial banks rule T-bills market
By Jackson Okoth
Commercial banks continue to dominate the Treasury bills market, a year after Central Bank of Kenya (CBK) lowered the minimum amount needed by investors to bid for these instruments.
Statistics show in the last nine months, the Treasury bills market was dominated by banks. For instance, CBK’s report for September shows banks held Sh81.3 billion in Treasury bills, or 66.6 per cent of the Sh122.2 billion Treasury bills issued that month.
In the same period, insurance firms held Sh15.1 billion or 12.3 per cent, parastatals Sh3.7 billion (three per cent), pension funds Sh6.5 billion (5.3 per cent) and other investors Sh15.6 billion(12.8 billion).
A CBK weekly bulletin, dated November 20 puts percentage of Government securities held by commercial banks at 53.8 per cent, pension funds 26.6 per cent, parastatals 6.3 per cent, insurance 11.2 per cent and others 8.5 per cent.
"It is this restrictive competition in the Treasury bills market that is keeping interest rates artificially high," said Mr Amish Gupta, an associate director, Standard Investment Bank.
In December last year, CBK lowered the minimum amount that can be invested in Treasury Bills from Sh1 million to Sh100,000.
The move opened an avenue for retail investors, fleeing from declining returns from stocks, to more the lucrative Government paper.
In addition to low rates offered by banks on deposits, the only other avenue available to retail investors has been Government securities. However, some hurdles remain on their path.
For instance, stockbrokers have been pushing for the government securities market to be opened to other players.
"There are concerns on integrity issues facing stockbrokers, especially the share registry," Mr Mwenda Marete, a manager at CBK’s debt department told a meeting for bond traders recently. Figures indicate that CBK depository has only 11,000 electronic accounts compared to an estimated 1.5 million at the Central Depository and Settlement Corporation (CDSC), which offers delivery and settlement mechanism at the Nairobi Stock Exchange.
Presently, one must open a CDS account at the CBK to participate in the weekly bids. This is despite the fact that there is a larger depository at the NSE.
"Most of the CD accounts are dormant, largely due to lack of information on how the system works," said Marete.
In the past, opening at CD account at the CBK has been a hassle with retail investors required to provide a load of details including a six months financial statement and personal identification numbers.
The other challenge has been that CBK has only four branches, making it difficult for many to open CDS accounts.
"The process of introducing online bidding of government securities is in the pipeline and this includes improving access to the CDS," said Marete.
Treasury has been locked in a battle with commercial banks to lower lending rates.
This has informed its policy decision to lower entry in the Treasury bills market to reduce reliance on commercial banks.
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