The Central Bank of Kenya (CBK), the government’s fiscal agent, has rejected Sh30.86 billion bids for one-year government securities in the last two auctions.
This brings to Sh41.43 billion the cash snubbed by CBK in the last five weeks as banks grapple with high liquidity amid reduced appetite for private sector credit.
Risk-averse commercial banks, the dominant participants in the Treasury bills auctions, have been scrambling for the 364-day papers as they look to lock in relatively high returns on stockpiles deposits.
The weekly sale of 364-day T-bills has witnessed a steady oversubscription since May 9 on the back of end of the quarterly tax payment cycle for corporates which peaks from April 20.
The bidding, largely by commercial banks, point to a trend where the government is the largest beneficiary of the September 2016 legal ceilings on loan charges at the expense of small- and medium-sized enterprises (SMEs).
Investors have placed bids worth Sh120.14 billion for the one-year debt papers in the last five weekly sales through last Thursday (May 13), statistics show, partly driven by scarcity of short-term debt instruments.
The Treasury has raised Sh78.44 billion in that period, Sh28.44 billion or 56.89 per cent more than the Sh50 billion it offered for sale.
Analysts have attributed high appetite for the 364-day debt securities amid undersubscription for three- and six-month ones in the last three weeks to high liquidity.
“Investors’ participation remained skewed towards the longer-dated paper, with the continued demand being attributable to the scarcity of newer short-term bonds in the primary market,” analysts at Cytonn Investments wrote.
Most commercial banks suspended unsecured lending to the MSMEs and households since the enforcement of interest rate caps at four percentage points above the Central Bank Rate, currently at nine per cent.
“The money market was liquid during the week ending June 13, supported by government payments, which offset tax remittances during the week.
Commercial banks’ excess reserves stood at Sh15.4 billion in relation to the 5.25 per cent cash reserves requirement (CRR). The average interbank rate declined to 3.31 per cent on June 13 from 4.16 per cent on June 06,” said central bank.
The risk-averse lenders have cited a higher risk profile than the four per cent allowed by the law for locking out struggling MSMEs and homes from credit markets.