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CBK lends small banks Sh96bn to boost liquidity

Banking Central Bank of Kenya head office in Nairobi. FILE PHOTO | NMG
Banking Central Bank of Kenya head office in Nairobi. FILE PHOTO | NMG 

Small lenders borrowed Sh96 billion from Central Bank (CBK) through the reverse repo market in the first two months of the year, as liquidity distribution remains skewed in favour of big boys.

Money market data from the CBK shows that the market remains relatively liquid, supported in recent weeks by heavy maturities of government securities and Treasury payments to government departments and agencies.

Despite this, the regulator is still having to step in and support banks, injecting Sh12.6 billion through the securities in the week to March 15 in support of the interbank market.

“The CBK is still using reverse repos to support banks that are unable to secure liquidity in the inter-bank market.  In January and February, the CBK injected a total of Sh96 billion, a reduced amount from Sh215 billion in the fourth quarter of 2016. Despite the drop in amount injected…it points to persistent liquidity shortages amongst certain banks,” said Standard Investment Bank in a briefing note to clients.

The CBK data shows that the industry as a whole is meeting its cash reserve requirements, indicating that the cause of the punitive CBK window borrowing is poor liquidity distribution rather than outright shortage.

“Commercial banks’ excess reserves above 5.25 per cent averaging requirement closed at Sh9.8 billion as the CRR cycle ended on March 14, and was slightly above the previous week’s position of Sh7.1 billion,” said CBK in its latest weekly bulletin.