Central Bank of Kenya Governor Dr Kamau Thugge (left) and President William Ruto during the launch of Central Securities Depository digital platform in Nairobi.
A segment of investors, including households, NGOs and churches, have for the first time overtaken banks on holdings of Treasury bills riding on higher returns and changes that allowed purchase of government paper via mobile phones.
Fresh central bank data show the banks’ share of Kenya‘s Sh615.8 billion Treasury bills stood at 33.8 percent in June from 42.8 percent, allowing the segment of investors labelled ‘others’ investors to overtake the lenders with a 56.2 percent.
The Central Bank of Kenya (CBK) refers the class of investors, which includes parastatals and saccos, as ‘others’ because it has been small relative to the banks, insurers and pension schemes.
In the year to June, however, banks reduced their holding of Treasury bills by 20.9 percent to Sh208 billion while the other investors grew their stakes 94.2 percent to Sh346.1 billion.
The shift emerged in a period when the CBK introduced the DhowCSD--a digital platform that allows investors to buy and sell government securities online and through their mobile phones.
Previously, investors were required to physically visit CBK offices to open accounts for purchase of the government paper and file a slew of paperwork.
The entry of DhowCSD has automated purchase of government paper and allowed investors to buy bonds and Treasury bills (T-blls) via their smartphones.
The surge in T-bill returns has also made the securities attractive against other investment classes like bank deposits and shares.
The average return on T-bills rose 16.8 percent in June from single digits.
The rate of return on the government paper increased as the CBK lifted the benchmark lending rate in the period to combat high inflation and exchange rate volatility.
Banks have traditionally dominated holdings of T-bills, using the short-term securities as a liquidity management tool.
T-bills are short-term investments in government securities which offer returns on periods of between 91-days, 182-days and 364-days.
The use of DhowCSD to easily purchase the government securities has rattled commercial banks, who have warned of risks including the loss of fixed-term depositors and their intermediation role in the financial system.
The banks called for the intervention of the government to help address their concerns in October but did not specify the remedies sought.
“Banks respondents indicated that there was a need for intervention by the government to manage disintermediation of banks as fixed-term deposit customers switch to the purchase of T-bills and T-bonds and thus increasing the cost of deposits, heightening aggressive competition for wholesale deposits between banks and crowding out lending to the private sector,” commercial banks told the CBK in survey responses.
Individual investors held 73,585 or 79.4 percent of DhowCSD accounts as of September 6, 2024.
Non-profit organisations, including churches, meanwhile held 1,205 accounts or 1.3 percent of DhowCSD accounts in the same period.
Commercial banks, however, continue to hold the greatest share of government domestic debt, inclusive of Treasury bonds.
The share of government domestic debt held by banking institutions stood at 45.12 percent at the end of June compared to a share of 12.92 percent by other investors.
The share of government securities held by other investors has, however, grown steadily against the backdrop of the DhowCSD launch.
Holders of government domestic debt include insurance companies, trust and pension funds.
Commercial banks held Sh2.07 trillion in Treasury bonds or 44.8 percent of all outstanding long-term government securities as of June this year from Sh1.82 trillion at the same time last year while other investors held a partly Sh621.1 billion.
Treasury bonds differ from Treasury bills on tenure, with the securities being medium to long-term investments that typically offer interest payments every six months throughout the bond’s maturity.
Treasury bills and bonds form the bulk of government domestic borrowing requirements, with the balance covering overdrafts issued by the CBK and on-lent International Monetary Fund (IMF) loans wired to the Treasury by the apex bank.
Total outstanding domestic debt stood at Sh5.41 trillion as of the end of June, representing 51.2 percent of the total Sh10.56 trillion public debt.
