Banks grow domestic debt by Sh81.5bn in four months

Commercial banks have since the beginning of the year grown their domestic debt holdings by Sh81.5 billion, marking the largest growth amongst investor categories.

At the start of the year, banks held Sh706 billion, but this increased to Sh787.7 billion as at April 17.

Banks’ share of the domestic debt as a percentage of the total now stands at 56 per cent, up from 54 per cent at the beginning of the year. It means that more than half of the debt is held by the lenders.

On April 17, the total domestic debt stood at Sh1.4 trillion against Sh1.3 trillion at the beginning of the year, representing a growth of 7.8 per cent.

Pension funds had the second largest increase in domestic debt holdings. The share rose by Sh39.6 billion to Sh350.3 billion.

However, parastatals’ share of the debt fell by Sh4 billion to Sh125.2 billion while that of investors categorised as “others” —including individuals, saccos, investment clubs—also fell by Sh24.2 billion to stand at Sh98.5 billion.

Banks have benefited from the ramping up of domestic borrowing since the beginning of the year. As at the end of March, net borrowing by the State for this financial year stood at Sh202.98 billion.

The money lent to the government was above the revised target of Sh118.8 billion. Initially, the government had budgeted to borrow Sh190.1 billion but cut this in a bid to ensure that the domestic borrowing did not affect the cost at which the private sector receives credit.

Analysts said that the government took advantage of the favourable market environment where there was adequate liquidity for subscriptions in the fixed-income instruments.

In particular, the State substantially increased its borrowing in March and April when it raised Sh50 billion in two tranches through an infrastructure bond.

READ: Treasury surpasses domestic loan target borrowing

“What is clear is that the government took advantage of the favourable environment to borrow more between January and March,” said Alexander Muiruri, head of fixed-income at Nairobi-based investment bank Kestrel Capital, in an earlier interview.

Mr Muiruri said banks had considerable liquidity which they channelled to government debt. Banks became the major lenders to the State after donors slowed down on releasing the funds they had promised last year.

Although Sh10 billion is expected in terms of grants by June, only Sh4.4 billion had been received by the end of March.

Grants from Amisom are supposed to reach Sh6 billion, but only Sh3.5 billion had been sent by the end of the nine-month period.

The target for foreign loans was Sh14.3 billion short of the Sh36.2 billion target set for the end of the financial year in June.

The resorting to domestic borrowing was also driven by the lower-than-projected tax collections.

Despite the financial year being three-quarters (or 75 per cent) gone, the total tax collection remitted to the Treasury stood at Sh699.8 billion or 70.7 per cent of the revised full-year target.