Treasury seeks small savers to end bank domination

The Treasury is courting ordinary savers to help it bring down the interest rate it pays on government securities.

An ongoing campaign on selected radio stations is sensitising the public to the benefits of investing in risk-free papers such as the 12-year infrastructure bond, which is offering an interest rate of 11 per cent.

Although the main goal is to raise money for social and physical amenities, it has the underlying aim of easing the stranglehold commercial banks usually have in determining the interest rates paid on Treasury bills and bonds.

It has always been suspected but never proven that commercial banks collude when bidding for public debt, keeping the borrowing costs high.

More retail investors taking up the debt would help the Central Bank, which manages the auction on behalf of the government, to accept only the less costly bids.

This would in turn support the government’s highly ambitious goal of bringing effective lending rates into single digits.

This is because the Treasury bill rate became a component of determining the base lending rate — the Kenya Bank Reference Rate — in July.

READ: Businesses expect interest rates to fall

When the decision was made to place KBRR at 9.13 per cent, the T-bill rate was slightly above 11 per cent; pulling up the rate at which CBR lends to banks — 8.5 per cent.

Falling T-bill rates would help pull KBRR down, bringing overall lending rates closer to the political target.

This, however, is not being helped by intense competition for deposits with some banks and Saccos announcing in the past week competitive interest rates of between 9 and 11 per cent.

Still, broadening competition for government debt could deny banks a traditional source of income, pushing them to lend more to the private sector.