Market News

Banks step up push for State loans

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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • Commercial banks have stepped up a push for cheap loans by the Central Bank of Kenya (CBK) to support their operations against a backdrop of the economic turmoil caused by the Covid-19 pandemic.
  • The regulator said in a credit survey report that the banks had proposed access to concessionary loans and the establishment of a credit guarantee scheme to shield them against defaults fuelled by pandemic.

Commercial banks have stepped up a push for cheap loans by the Central Bank of Kenya (CBK) to support their operations against a backdrop of the economic turmoil caused by the Covid-19 pandemic.

The regulator said in a credit survey report that the banks had proposed access to concessionary loans and the establishment of a credit guarantee scheme to shield them against defaults fuelled by pandemic.

"The respondents made proposals for CBK to consider to further mitigate the impact of Covid-19. In summary, the banks have noted that there is need for CBK in conjunction with the National Treasury to come up with other specific measures that particularly cushion institutions," said the CBK.

"This could be in form of additional funding to be offered at concessionary rates to the commercial banks (and) Credit Guarantee Schemes."

The CBK is the lender of last resort for banks after exhausting all other avenues, including borrowing from each other. Banks can borrow from the regulator through the facility commonly known as “discount window” whose charges currently stand at 13 percent.

Banks are required to hold an adequate amount of liquid assets, such as cash, to manage any potential bank runs by clients. If a bank cannot meet these liquidity requirements, it will need to borrow money in the interbank market to cover the shortfall. The larger banks have been reluctant to lend to their smaller counterparts since the collapse of the three smaller banks a few years ago, citing heightened risk.

In the credit survey report, the CBK said that 65 percent of the banks had seen an improvement of liquidity by March 31 while 35 percent of them had witnessed a decline in available funds in the period. This compares to 74 percent of the banks that had seen an improvement of liquidity by September and 24 percent of them which had seen a decline in the same highlighting a worsening of the bank's fortunes due to the economic fallout of the pandemic.