Banks have raised their holdings of government debt by Sh60 billion since the beginning of the year to go past the Sh900 billion mark even as interest rates fall and margins on customer loans remain healthy.
The lenders held government debt worth Sh908.6 billion by March 18 up from Sh848.1 billion at the beginning of the year, CBK data shows.
Banks have raised their holdings of government debt by Sh60 billion since the beginning of the year to go past the Sh900 billion mark even as interest rates fall and margins on customer loans remain healthy.
The lenders held government debt worth Sh908.6 billion by March 18 up from Sh848.1 billion at the beginning of the year, CBK data shows.
In percentage terms, the lenders hold 56.3 per cent of the debt which stands at Sh1.61 trillion. Total domestic debt has gone up by Sh83.62 billion up since January 1.
Over a one-year period (from March 2015) the government debt held by commercial banks has gone up by Sh166.1 billion. Total domestic debt stood at Sh1.35 trillion a year ago.
Analysts say that although interest rates on government securities have come down since the start of the year, the lenders have to consider other underlying factors in the market in addition to prevailing interest rates before choosing whether to accelerate lending to government or the private sector.
“Banks are looking at the looming review of the reference lending rate which could yet squeeze margins on private sector credit, and are therefore likely to seek to lock in the rates on offer on government securities,” said a fixed-income adviser at a commercial bank.
“Tighter regulatory risk measures also mean that they are having to look for higher quality borrowers, who are not many in the market at the moment, resulting in more consideration for the safety of government debt.”
In the first quarter of this year, there has been healthy liquidity in the money markets, giving banks the necessary resource to up their lending to government. The interbank rate stood at 4.06 per cent Thursday, indicating comfortable liquidity.
The rates on Treasury bills have come down across all three tenors since January. On the 91-day paper, the rate has come down from 10.8 to 8.8 per cent, the 182-day from 12.8 to 10.9 per cent and the 364-day offer from 13.3 to 12.2 per cent.
The Treasury has been instituting spending cuts in order to reduce pressure on domestic borrowing, which has contributed to the lower interest rates. The government is also shifting focus towards foreign debt.
The percentage of total debt held by insurance firms, pension funds, parastatals, individuals and saccos has gone down this year. In shilling terms though, the absolute holdings have gone up in tandem with the rise in overall debt.
Pension funds now hold 25.2 per cent of total debt, compared to 25.4 per cent in January. This translates to an increase of Sh18 billion to Sh130.8 billion over the three month period.
Insurance firms have seen their holdings rise by Sh2.2 billion to Sh130.8 billion although the percentage of the total debt that is in their custody has declined from 8.4 to 8.1 per cent.
Parastatal holdings have gone up by Sh3.9 billion to Sh74.3 billion, although the percentage of total debt remains constant at 4.6 per cent.
Other investors, who include individuals, saccos and investment clubs, now hold 5.9 per cent of total debt translating to Sh95.3 billion. They held 6.1 per cent in January, which at the time was equivalent to Sh93.4 billion.
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