Banks collateral exchange system will be ready in June

Banks will be able to trade government securities with each other through horizontal repos from June next year when the Central Securities Depository (CSD) becomes operational.

The World Bank has revealed that the Central Bank of Kenya (CBK) has put out timelines to finalise testing the system in May and roll out the programme by June next year.

The multilateral lender, which has been funding the upgrade since 2020 made the revelation under a restructuring deal to extend a Sh4.1 billion facility by six months to allow CBK complete the project.

The CSD is being modernised to assist banks to trade with each other by exchanging collateral of their treasuries holdings, thus allowing smaller banks to get favourable interbank rates.

Currently, small lenders get expensive interbank rate when borrowing from their big peers because they are considered risky and do not offer collateral for their overnight loans.

“Following discussions with CBK and the Project Implementation Unit (PIU) as well as guidance from the World Bank management, the team proposes to extend the project closing date by six months, from December 31, 2021 to June 30, 2022. The extension will facilitate the completion of the active CSD work stream for the CBK,” the World Bank said.

The new system is under testing by the vender Montran Corporation and will be fully deployed in May.

The CSD project under the CBK, kicked-off in September 2020 and was expected to take 18 months scheduled for completion in March 2022.

However, due to the Covid-19 pandemic and related disruptions, the CBK has indicated that it requires an extension of the project to complete the remaining activities and anticipates completion by June 2022.