Listed banks last year increased their purchase of government securities by Sh153.1 billion and slowed down on lending in the in the wake of interest rate caps that started in September.
The 11 publicly traded lenders held Sh550.2 billion of government bonds and Treasury bills (T-Bills) as of December, raising the financial investments 38.5 per cent from Sh397.1 billion a year earlier according to data compiled by the Business Daily.
Lending by the Nairobi Securities Exchange (NSE)-listed firms meanwhile grew at a lower rate of 6.3 per cent in the period compared to 17.2 per cent the year before, according to Cytonn Investments.
Banks and analysts have said the rush to treasuries is due to the fact that they offer high and safer returns compared to lending to risky borrowers who are finding it difficult to get loans at the prescribed maximum rate of 14 per cent.
“This has mainly been as a result of the new loan pricing methodology that limits the loan rates currently at 14 per cent,” said Maurice Oduor, investment manager at Cytonn.
Equity Bank #ticker:EQTY increased its holding of treasuries 135 per cent to Sh100.6 billion in the review period, topping the list of lenders who retreated to the safety of government debt.
Diamond Trust Bank #ticker:DTK more than doubled its portfolio to Sh74.3 billion while that of HF Group jumped 90.4 per cent to Sh4 billion.
It was followed by National Bank of Kenya #ticker:NBK which ended the year at Sh34.5 billion, up 27.7 per cent from Sh27 billion.
Co-op Bank was the only listed lender to cut its holding of government debt to Sh57.8 billion from Sh60.1 billion in 2015.
Kenya’s biggest bank by assets KCB Group #ticker:KCB raised its treasuries portfolio 18 per cent to Sh90.9 billion.
“The enactment of the (interest rate controls) is expected to impact on credit growth for specific segments of the market, dampened by inability to price risk,” KCB commented on the rate caps.
“Banks are also expected to become more conservative in their lending while investments in Treasury bills are expected to increase.”