Large banks raise bond holdings by Sh250bn

Tier one banks increased their holdings of government debt by Sh249.2 billion or 28.9 percent in the 12-months to June, continuing to play safe in their asset allocation despite the removal of the rate cap on customer loans.

Holdings of government paper by Absa #ticker:ABSA, Stanbic #ticker:CFC, Co-operative Bank #ticker:COOP, Diamond Trust Bank #ticker:DTK, Equity Bank #ticker:EQTY, I&M Bank #ticker:I&M, Kenya Commercial Bank #ticker:KCB, NCBA #ticker:NCBA and Standard Chartered #ticker:SCBK increased from Sh863.5 billion to Sh1.1 trillion in the period.

Loans to customers by the large lenders in the meantime rose by 17.2 percent from Sh1.9 trillion to Sh2.3 trillion over the period.

Genghis Capital analyst Gerald Muriuki said this continued investment in government securities is a strategic move by lenders to cushion their bottom lines, especially from the impact of coronavirus.

“It was more of a tactical strategy for banks under the current environment. Banks would not favour lending to riskier classes like customers who had been impacted by the pandemic even as the economy is still struggling,” Mr Muriuki said.

The pandemic set off massive loan restructuring for bank customers— Sh844.4 billion between March and June—after the Central Bank of Kenya (CBK) allowed lenders to do so.

Banks also say they are still restricted in terms of how much premium they can put on riskier customers even after the rate cap was lifted last year.

“We are still pegging loans around Central Bank Rate. After the rate cap was lifted most banks developed a risk pricing model but are yet to implement them because they are not yet approved,” a bank executive who did not wish to be named said.

The average lending rate to bank loan customers has also fallen to all-time low levels, and is now matching or even falling below the rates on offer on risk free Treasury bonds.