Banks’ lending to the Treasury jumps above Sh800bn
What you need to know:
Banks have raised their holdings of state domestic debt by 1.2 percentage points to 57.1 per cent since the beginning of the month, pushing their lending to the government past the Sh800 billion mark.
Over a one-year period (from July 2014) commercial banks have raised their share of the government’s domestic debt by Sh117 billion, mainly through increased purchase of Treasury bonds.
The Treasury has in the past said it intends to cut back its level of domestic borrowing to avoid crowding the private sector out of the credit market, hence the push towards foreign debt and a lowering of interest rates.
Banks have raised their holdings of state domestic debt by 1.2 percentage points to 57.1 per cent since the beginning of the month, pushing their lending to the government past the Sh800 billion mark.
The holdings have now risen by Sh16 billion to Sh805 billion since the beginning of the month, out of the total Sh1.41 trillion. Lenders are looking for higher yields on the low risk lending platform.
Over a one-year period (from July 2014) commercial banks have raised their share of the government’s domestic debt by Sh117 billion, mainly through increased purchase of Treasury bonds. Government domestic debt one year ago stood at Sh1.28 trillion.
“Given the rise in yields over the last few weeks, banks have definitely spurred lending to the government particularly during primary Treasury bill auctions….although tight liquidity in the money market has also affected banks, not only institutional investors,” said Genghis capital fixed income analyst Vinita Kotedia.
“We expect yields to continue to rise in the medium to short term as liquidity in the money market remains tight, while investors are likely to bid aggressively in light of inflationary pressures and a tighter monetary policy.”
There has been limited growth of total government domestic debt over the past few weeks. The growth in banks’ total treasuries investment has come after a reduction in investment provided by other investors who include individuals, saccos and investment clubs from 6.8 per cent to 5.5 per cent.
This represents a reduction of Sh18.1 billion. Pension funds have seen their holdings of the domestic debt remain steady at 24.9 per cent of the total this month, while that held by insurance companies has grown marginally from nine to 9.1 per cent.
The debt held by pension funds has therefore gone up by Sh750 million, with that of insurance firms up by Sh1.7 billion.
The share held by parastatals stands at 3.5 per cent compared 3.4 per cent at the beginning of the month, translating to an increase of Sh1.5 billion.
The Treasury has in the past said it intends to cut back its level of domestic borrowing to avoid crowding the private sector out of the credit market, hence the push towards foreign debt and a lowering of interest rates.
Even though yields on government paper are rising (with the latest bond offering a rate at 14.3 per cent) analysts still think despite the increase in Central Bank Rate (CBR) and subsequently Kenya Banks Reference Rate (KBRR) banks will still look to lend to the private sector.
“Banks increasing lending to the government would not affect private sector lending as such. The rise in the CBR rate which will consequently push up interest rates will also encourage banks to spur lending to the private sector,” said Ms Kotedia.
In the first quarter of this year, there was considerably high liquidity in the money markets, giving banks the necessary resource to up their lending to government.
At the same time, the friendlier lending rate on government securities encouraged the Treasury to borrow more, seeking to plug its rising budget deficit.
