Banks’ excess cash drops to Sh9.6bn on private sector activity uptick

Commercial banks’ excess cash reserves above the statutory minimum has dropped nearly four times in the past week, partly due to increasing private sector activity that has seen businesses start to use their cash deposits.

Banks are required to maintain a minimum cash reserve ratio of 4.25 percent of their total deposits.

Last week, their excess cash above this ratio dropped to Sh9.6 billion from Sh34.7 billion held in the previous week.

The Central Bank of Kenya (CBK) lowered the ratio in March from 5.25 percent to increase the funds available to banks for lending to support individuals and businesses that were negatively affected by the Covid-19 pandemic.

Analysts have partly attributed the fall in liquidity to the gradual picking of economic activity with businesses making withdrawals on receiving payments from government.

“This could be because the excess liquidity lying in the banks is being used by customers. Some of this (liquidity) is also being used by banks for lending and buying government securities,” said Sterling Capital head of research Renaldo D'Souza.

The government has been slowly easing the Covid-19 related restrictions on the economy in the last two months, with further easing expected next week when President Uhuru Kenyatta hosts the national covid-19 conference.

The tightening of liquidity has also seen the interbank rate rise to 2.98 percent this week from 2.33 percent a week ago.

The CBK also said the average number of interbank deals per day declined to 25 from 28 in the previous week, and the value traded declined to Sh11.3 billion from Sh13.4 billion in the previous week.

The September Treasury bond sale also sucked out liquidity from the market, having attracted bids worth Sh81.68 billion against the offer of Sh50 billion, with the CBK taking up Sh64.2 billion.