Capital Markets

Bank liquidity climbs to 56pc on higher deposits

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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • Liquidity in the banking sector closed at a record 56.3 percent in March on increased deposits and a corresponding slow credit growth, fresh data by the Central Bank of Kenya (CBK) shows.
  • This was a sharp upturn since December 2020 when liquidity levels stood at 54.6 percent and is way above the minimum statutory ratio of 20 per cent, leaving excess commercial bank reserves.
  • The CBK report has linked the high liquidity to increased deposits, maturity of government securities and loan recoveries.

Liquidity in the banking sector closed at a record 56.3 percent in March on increased deposits and a corresponding slow credit growth, fresh data by the Central Bank of Kenya (CBK) shows.

This was a sharp upturn since December 2020 when liquidity levels stood at 54.6 percent and is way above the minimum statutory ratio of 20 per cent, leaving excess commercial bank reserves.

The CBK report has linked the high liquidity to increased deposits, maturity of government securities and loan recoveries.

Despite this, interbank rate, the rate at which banks borrow from each other, averaged at 5.01 per cent compared to 3.7 per cent in December, and 4.36 per cent average recorded in the quarter ended March 2020.

In the first three months, total deposits increased by 2.8 per cent to Sh4.133 trillion, from Sh4.021 trillion in December 2020.

The high deposits highlighted the tightened customer spending in an environment with rising uncertainty over the stability of jobs and alternative income streams.

Businesses have also attributed this to cash flow problems resulting in slowed credit demand.

The CBK report showed that gross loans increased by 1.4 per cent to Sh3.04 trillion in March, from the previous quarter due to credit advances in the financial services, energy and water sectors.

Liquidity position among the lenders improved from last year when the banks were hit by issued borrowers’ debt relief and moratoriums, affecting capitals.

Over the year, banks restructured loans worth Sh1.7 trillion representing 57 per cent of total gross loans. This has since dropped to Sh569.3 billion restructured loans or 19 per cent of the total banking sector loans book at end of February, on increased recovery efforts.

The high liquidity signals increased bidding on government securities.

The infrastructure bond auction in April attracted bids worth Sh88.6 billion against a target of Sh60 billion.

Investors offered Sh42.59 billion for the Sh30 billion reopened 15- and new 25-year paper for this month, with the State taking up Sh20.29 billion, a trend that analysts attributed to the rejection of aggressive bids.