Appetite for short tenor Treasury bills signals high liquidity

Treasury bills were oversubscribed for the seventh week in a row signalling high appetite and liquidity by investors including banks for short-term securities.

State fiscal agent the Central Bank of Kenya (CBK) received bids worth Sh33.66 billion, 40.25 per cent higher than the Sh24 billion on offer for three-, six- and 12-month securities.

The appetite for government debt points to high liquidity on a day banks were expected to meet a statutory average daily cash reserve threshold of 5.25 per cent of total deposits for the month.

Corporates were also expected to meet tax obligations during the week.

That points to a worrying signal where banks, which account for more than half of government securities, may have largely snubbed private sector in favour of lending cash to the government.

“We have seen a high liquidity build up since the beginning of the year partly because most banks traditionally hold huge cash reserve towards the end of the year, and that has been boosting T-bills auction,” Churchill Ogutu, a research analyst at Genghis Capital, said on phone.

“But that has come at the expense of private sector credit growth.”

Overall, the CBK has accepted Sh212.26 billion out of Sh301.58 billion T-bill bids placed by investors since the year started.

This, however, translates to new borrowing of Sh54.02 billion given the Sh158.24 billion in maturities in the period.

About 77.8 per cent of the large banks surveyed by the CBK in January expected demand for credit to be moderate to high in the first two months of the year, driven by education-related needs and expected demand for loans by farmers in February ahead of the long rains.

Loans held by private firms rose 4.4 per cent to Sh2.42 trillion last November, latest CBK data shows, the highest growth since November 2016 following the on-set of legal caps on loan charges at four percentage points above the Central Bank Rate (CBR).

Dampen demand

“Respondents (banks) indicated that most borrowers were still in the planning stage of their business goals, with execution expected to be in the second quarter and that lower loan approval rates by banks had slightly dampened the demand for credit with some clients resorting to mobile loans,” CBK said last week.

Mr Ogutu said they expect private sector growth to be between 1.5-2.0 per cent in January. The CBK said it accepted bids worth Sh30.60 billion during T-bills auction last Thursday out of Sh33.66 billion bids.